May 152017
 
 May 15, 2017  Posted by at 8:18 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Fred Stein Ballfield NY 1946

 

Global Property Bubble Is Ready To Pop (MF)
3 Cities Push Canada To Another Record On House Prices (HPo)
Cyber Attack Aftershocks Disrupt Devices Across Asia on Monday (R.)
Lessons From Last Week’s Cyberattack (Microsoft)
The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)
Peak China: Chinese Data Misses Across The Board (ZH)
Why India Is Cool Towards China’s Belt And Road (SCMP)
China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)
Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)
New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)
Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)
Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)
Eyes on Euro Fighter Macron (K.)
Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)
What Germany Owes Namibia For Genocide (Econ)

 

 

Only real question: will they all fall together like dominoes?

Global Property Bubble Is Ready To Pop (MF)

Ever since interest rates were slashed to near zero in the wake of the financial crisis, the world has gone property mad. Residential house prices from Abu Dhabi to Zurich have spiralled as hot money travelled the world looking for a home. For those who got in early it has been incredibly rewarding, even if – whisper it – stock markets have actually done far better. The global property bubble cannot blow much bigger. The best we can hope is that it deflates slowly… but it could burst. Property is still going crazy in China, where prices have been pumped up by yet another bout of government stimulus. Guangzhou, close to Hong Kong on the Chinese mainland, leapt a whopping 36% in the past 12 months, according to Knight Frank. Prices rose around 20% in Beijing and Shanghai, as well as in Toronto, Canada.

Seoul in South Korea continues to boom, as does Sydney and Stockholm, both up 10.7% over the last year. Berlin (8.7%), Melbourne (8.6%) and Vancouver (7.9%) are also performing strongly. In most other global cities, property is finally starting to slow. Hong Kong rose a relatively modest 5.3% while Singapore grew 4%, and thereafter price hikes trail away. Half of the 41 countries in the report grew by less than 2%, while nearly one in three saw prices fall, by up to 8.3%. Prime central London was the world’s raciest property market but is now leading the charge in the other direction, falling 6.4%. Former hotspots Zurich, Moscow and Istanbul fell 7% or more over the last 12 months. Cheap money has driven prices ever higher for eight years but is finally losing traction, as affordability is stretched again. Interest rates cannot go any lower and could start rising if the US Federal Reserve continues to tighten. Regulatory authorities are looking to rein in overheated markets, with China only the latest to tighten borrowing requirements. The glory days are over.

Investing in property has one major benefit over stocks and shares – you can leverage up borrowing money to fund your purchase. Thereafter, the advantages are all one way. First, you can trade stocks online within seconds, whereas offloading property can take months (longer in a market crash). You can invest small amounts, rather than the hundreds of thousands of dollars, pounds, euros, yen or renminbi you need to buy a decent property these days. If you buy an investment property you have the effort of doing up and maintaining it, finding tenants, and paying a host of local taxes. You don’t have any of that nonsense with stocks. Best of all, you can invest quickly and easily in a wide spread global stocks, sectors and markets.

Read more …

Greater fools and empty bags.

3 Cities Push Canada To Another Record On House Prices (HPo)

Home prices in Canada rose for the 15th straight month in a row in April, according to the Teranet-National Bank house price index, which once again hit its highest levels ever. But virtually all the strength seen over the past year came from just three cities — Toronto, Hamilton and Victoria. The index, which tracks repeat sales of single-family homes over time, found Toronto led the way, with the price index rising 2.6% in April. The city has seen prices jump 7.3% since the start of the year, and 26.3% in the past 12 months. Nearby Hamilton, which is experiencing spillover from Toronto’s housing boom, saw its price index rise 2% in April and 23% over the past year. Vancouver, which as recently as a year ago was showing the fastest price growth in the country, is now showing signs of slowing.

The price index fell 0.1% in April, and compared to a year ago, prices are up 9.7%, slower than the national average of 13.4%. Many market experts say Vancouver’s foreign buyer tax has pushed buyers to other cities, including to Victoria, where the price index rose 1.5% in April, and 19% over the past year. “Based on the cooldown in home sales that began early last year, we expect the Vancouver growth rate to fall much lower over the next few months,” wrote David Madani, senior Canada economist at Capital Economics. But Madani expects Toronto to experience a similar cooling. He noted that the city saw a sudden, 30% spike in new home listings in April. That’s “further evidence that the surge in house price inflation is close to a peak and will drop back sharply before the end of this year,” he wrote in a client note.

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So far not so bad. But if the next generation of the attack has no killswitch that can be triggered, anything is possible.

Cyber Attack Aftershocks Disrupt Devices Across Asia (R.)

Asian governments and businesses reported some disruptions from the WannaCry ransomware worm on Monday but cybersecurity experts warned of a wider impact as more employees turned on their computers and checked e-mails. The ransomware that has locked up hundreds of thousands of computers in more than 150 countries has been mainly spread by e-mail, hitting factories, hospitals, shops and schools worldwide. While the effect on Asian entities appeared to be contained on Monday, industry professionals flagged potential risks as more systems came online across the region. Companies that were hit by the worm may be wary of making it public, they added.

“We’re looking at our victims’ profiles, we’re still seeing a lot of victims in the Asia-Pacific region. But it is a global campaign, it’s not targeted,” said Tim Wellsmore, Director of Threat Intelligence, Asia Pacific at cybersecurity firm FireEye. “But I don’t think we can say it hasn’t impacted this region to the extent it has some other regions.” Michael Gazeley, managing director of Network Box, a Hong Kong-based cybersecurity firm, said there were still “many ‘landmines’ waiting in people’s in-boxes” in the region, with most of the attacks having arrived via e-mail.

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Microsoft blames the NSA, and for good reason, but…

Lessons From Last Week’s Cyberattack (Microsoft)

[..] this attack provides yet another example of why the stockpiling of vulnerabilities by governments is such a problem. This is an emerging pattern in 2017. We have seen vulnerabilities stored by the CIA show up on WikiLeaks, and now this vulnerability stolen from the NSA has affected customers around the world. Repeatedly, exploits in the hands of governments have leaked into the public domain and caused widespread damage. An equivalent scenario with conventional weapons would be the U.S. military having some of its Tomahawk missiles stolen. And this most recent attack represents a completely unintended but disconcerting link between the two most serious forms of cybersecurity threats in the world today – nation-state action and organized criminal action.

The governments of the world should treat this attack as a wake-up call. They need to take a different approach and adhere in cyberspace to the same rules applied to weapons in the physical world. We need governments to consider the damage to civilians that comes from hoarding these vulnerabilities and the use of these exploits. This is one reason we called in February for a new “Digital Geneva Convention” to govern these issues, including a new requirement for governments to report vulnerabilities to vendors, rather than stockpile, sell, or exploit them. And it’s why we’ve pledged our support for defending every customer everywhere in the face of cyberattacks, regardless of their nationality. This weekend, whether it’s in London, New York, Moscow, Delhi, Sao Paulo, or Beijing, we’re putting this principle into action and working with customers around the world.

We should take from this recent attack a renewed determination for more urgent collective action. We need the tech sector, customers, and governments to work together to protect against cybersecurity attacks. More action is needed, and it’s needed now. In this sense, the WannaCrypt attack is a wake-up call for all of us. We recognize our responsibility to help answer this call, and Microsoft is committed to doing its part.

Read more …

…Microsoft itself carries part of the blame as well. It doesn’t support XP, but does ask for a lot of money for patches.

The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)

The attack was halted by a stroke of luck: the ransomware had a kill switch that a British employee in a cybersecurity firm managed to activate. Shortly after, Microsoft finally released for free the patch that they had been withholding from users that had not signed up for expensive custom support agreements. But the crisis is far from over. This particular vulnerability still lives in unpatched systems, and the next one may not have a convenient kill switch. While it is inevitable that software will have bugs, there are ways to make operating systems much more secure — but that costs real money.

While this particular bug affected both new and old versions of Microsoft’s operating systems, the older ones like XP have more critical vulnerabilities. This is partly because our understanding of how to make secure software has advanced over the years, and partly because of the incentives in the software business. Since most software is sold with an “as is” license, meaning the company is not legally liable for any issues with it even on day one, it has not made much sense to spend the extra money and time required to make software more secure quickly. Indeed, for many years, Facebook’s mantra for its programmers was “move fast and break things.”

[..] If I have painted a bleak picture, it is because things are bleak. Our software evolves by layering new systems on old, and that means we have constructed entire cities upon crumbling swamps. And we live on the fault lines where more earthquakes are inevitable. All the key actors have to work together, and fast. First, companies like Microsoft should discard the idea that they can abandon people using older software. The money they made from these customers hasn’t expired; neither has their responsibility to fix defects. Besides, Microsoft is sitting on a cash hoard estimated at more than $100 billion (the result of how little tax modern corporations pay and how profitable it is to sell a dominant operating system under monopolistic dynamics with no liability for defects).

At a minimum, Microsoft clearly should have provided the critical update in March to all its users, not just those paying extra. Indeed, “pay extra money to us or we will withhold critical security updates” can be seen as its own form of ransomware. In its defense, Microsoft probably could point out that its operating systems have come a long way in security since Windows XP, and it has spent a lot of money updating old software, even above industry norms. However, industry norms are lousy to horrible, and it is reasonable to expect a company with a dominant market position, that made so much money selling software that runs critical infrastructure, to do more.

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tick tick tick.

Peak China: Chinese Data Misses Across The Board (ZH)

Following months of warnings that China’s economy is slowing down as a result of not only a collapse in China’s credit impulse but also tighter monetary conditions, as well as rolling over loan growth which has pressured both CPI and PPI – i.e., the global “reflation trade” – as the following chart from Bloomberg’s David Ingels shows…

… and culminating over the weekend with a warning in no uncertain terms from Citi, which said that at least four key economic indicators are “starting to wave red flags” among which:
• The Markit PMI is starting to turn over
• China’s Inflation Surprise Index – a leading indicator to global inflation metric – has posted a recent sharp drop
• China’s import trade has likewise tumbled after surging recently
• Chinese Iron Ore imports into Qingado port have plunged

… moments ago China’s National Bureau of Statistics validated the mounting fears, when it reported misses across all key economic categories for the month of April, as follows:
• Retail Sales 10.7% Y/Y, Exp. 10.8%, Last 10.9%
• Fixed Asset Investment 8.9% Y/Y, Exp. 9.1%, Last 9.2%
• Industrial Output 6.5% Y/Y, Exp. 7.0%, Last 7.6%
• Industrial Production YTD 6.7% Y/Y, Exp. 6.9%, Last 6.8%

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Big meeting, Putin, Erdogan et al, but not India, US, Germany and more. Shaky.

Why India Is Cool Towards China’s Belt And Road (SCMP)

It is one of the most imaginative and ambitious programmes ever to be rolled out by a government. It represents a broad strategy for China’s economic cooperation and expanded presence in Asia, Africa and Europe, and has been presented as a win-win initiative for all participating nations. But for India, the connotations of China’s Belt and Road Initiative” are somewhat different. A flagship programme and the most advanced component of the initiative, the China-Pakistan Economic Corridor (CPEC), passes through Pakistan-occupied Kashmir, a region that belongs to India and is under the control of Pakistan. As a country acutely conscious of its own sovereignty-related claims, China should have no difficulty in appreciating India’s sensitivities in this regard.

While investment in the Gwadar port, roads and energy projects is reported to have increased from US$46 billion to US$55 billion, CPEC lacks economic justification for China and its geopolitical drivers cause legitimate anxieties in India. The Belt and Road plan is a practical economic strategy for China’s objectives to connect the region, seek new growth engines for its slowing economy, utilise its surplus capacity, and develop and stabilise its western regions. It may also bring benefits to partner countries. However, it also has a strategic and political agenda which remains opaque. Apart from the CPEC, India also has misgivings about the manner in which the Belt and Road Initiative is being pursued in its neighbourhood. For instance, the development of ports under Chinese operational control as part of the Maritime Silk Road strategy has raised concerns in India which need to be addressed.

India has repeatedly conveyed its strong objections regarding the CPEC to China. The Belt and Road plan is a Chinese initiative rather than a multilateral enterprise undertaken after prior consultation with potential partner countries, and India has not endorsed it. There is an expectation in India that China will take India’s sensitivities into account while formulating its plans. Clearly, there is room for closer consultations between China and India on the objectives, contours and future directions of the Belt and Road. However, India has considered synergy-based cooperation on a case-by-case basis, where its interests for regional development converge with that of other countries, including China.

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India’s right, the Silk road is financed with Monopoly money.

China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)

Alas, the meticulously scripted plan to showcase China’s growing economic and trade dominance did not go off quite as smoothly as Xi had planned. First, just hours before the summit opened, North Korea launched its latest ballistic missile, provoking Beijing and further testing the patience of China, its chief ally. Ironically, the United States had complained to China on Friday over the inclusion of a North Korean delegation at the event. Then, in a sign that China’s rampant, credit-fuelled growth is making some just a little uncomfortable, some Western diplomats expressed unease about both the summit and the plan as a whole, seeing it as an attempt to promote Chinese influence globally according to Reuters. They are also concerned about transparency and access for foreign firms to the scheme.

Australian Trade Minister Steven Ciobo said Canberra was receptive to exploring commercial opportunities China’s new Silk Road presented, but any decisions would remain incumbent on national interest. Responding to criticism, Xi said that “China is willing to share its development experience with all countries” and added “we will not interfere in other countries’ internal affairs. We will not export our system of society and development model, and even more will not impose our views on others.” But the biggest surprise was India, the world’s fastest growing nation and the second most populous in the world, which did not even bother to send an official delegation to Beijing and instead criticised China’s global initiative, warning of an “unsustainable debt burden” for countries involved.

Indian foreign ministry spokesman Gopal Baglay, asked whether New Delhi was participating in the summit, said “India could not accept a project that compromised its sovereignty.” India is incensed that one of the key Belt and Road projects passes through Kashmir and Pakistan. The nuclear-armed rivals have fought two of their three wars over the disputed region, Reuters notes. “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity,” Baglay said. Furthermore, he also warned of the danger of debt. One of the criticisms of the Silk Road plan is that host countries may struggle to pay back loans for huge infrastructure projects being carried out and funded by Chinese companies and banks. “Connectivity initiatives must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities,” Baglay said.

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Really, Brussels, Washington, you think it’s a good idea to let China buy up Greece? No security jiggers at all?

Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)

Fosun International, the Chinese conglomerate that’s part of a venture to transform the former Athens airport site into one of the biggest real-estate projects in Europe, is now turning its attention to Greek tourism. Fosun wants to use its stake in tour operator Thomas Cook to start building vacation packages specifically for the vast Chinese market, Senior Vice President Jim Jiannong Qian said in a May 4 interview in Athens. The Chinese government predicts 1.5 million of its citizens will start vacationing in Greece in the medium term. Tourism accounted for over one-quarter of Greece’s GDP in 2016, according to the Greek Tourism Confederation. Visitor numbers in 2016 reached 28.1 million, up 7.6% from 2015. Tourists generated €13.2 billion in travel receipts, according to the Bank of Greece. Of these travelers, 150,000 came from China, Beijing says.

“Greece is a very safe place for visitors,” said Qian who is also president of Fosun’s Tourism and Commercial Group. There are also good opportunities for tourism investments in Greece, he said. Fosun is in discussions to buy existing hotels and resorts, or for the construction of new ones, in Greece by its fully owned portfolio company Club Med. An increase in Chinese visitors to Greece would eventually lead to direct flights from Beijing and Shanghai to Athens, Qian said. The 54 year-old Qian said the situation in Greece has changed since the company first invested in Athens-based luxury goods retailer Folli Follie Group in 2011. “Greece’s economy is recovering now and can also deliver very good opportunities for foreign investors,” he said. “We look at the figures from retail sales and of the tourism sector,” and see the improvement.

Fosun, which manages €64.3 billion in total assets globally, has invested more than €200 million in Greece through its direct holding in Folli Follie and indirectly through Thomas Cook and Club Med, Qian said. “If you can help the economy grow, for example if we have the package product for Greece, then we create more jobs for restaurants, for retail stores, for taxi drivers.” The company, the biggest private Chinese company that invests in Europe, owns German lender Hauck & Aufhaeuser and Portuguese insurance company Fidelidade, and doesn’t rule out an investment in the Greek banking sector if an opportunity arises in the future, Qian said, refuting reports that the group has already made a bid to acquire shares in Greek banks. Fosun has already placed a bid for the acquisition of National Bank of Greece’s insurance unit National Insurance, and according to Qian, has no money ceiling when it comes to investments, as long as the opportunity is worth it.

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Rerouted trips to Greece?

New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)

New Zealand has slashed its forecast for Chinese tourist spending over the next six years, denting growth expectations for its biggest foreign-exchange earner. Spending by Chinese tourists will rise to NZ$3.73 billion ($2.5 billion) by 2022 from NZ$1.65 billion last year, according to the Ministry of Business, Innovation and Employment’s latest annual forecasts. That’s 30% less than the NZ$5.32 billion expected in last year’s projections. “There is significant geopolitical risk around the China market,” the ministry said in the report, published Friday, adding that indicators like early-2017 visa approvals were “suggesting a short-term slowing in the market.” The downward revision indicates overall revenue from tourists won’t grow as quickly as previously expected, and that Australia will remain the biggest source of tourist dollars until 2021. Last year, officials forecast China would take the top ranking in 2017.

Tourism, which last year overtook dairy as New Zealand’s top export, has been growing faster than expected. Visitor numbers surged to 3.5 million in 2016, four years sooner than had been envisaged in 2014, and are projected to jump to 4.9 million by 2023. Still, the uncertainty around China “adds some risk to both China’s and the national forecast numbers,” the ministry said in its latest report. The slower forecast trajectory for Chinese spending growth reflects fewer visitors and less spending per day than projected 12 months ago. Arrivals from China are expected to reach 812,000 in 2022. That’s less than the 921,000 estimated in last year’s report. Average spending per day is forecast to be NZ$343 in 2022 rather than the NZ$394 estimated a year ago. As a result, total foreign visitor spending will rise to NZ$15.3 billion in 2023, according to the forecasts. The 2016 prediction was that spending would rise to NZ$16 billion by 2022.

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As if we needed any more evidence that credibility is the least of their worries.

Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)

To protect the poorest Americans, should central bankers raise interest rates faster? At least one of them is making that argument. During a speech last month, Federal Reserve Bank of Kansas City President Esther George said she was “not as enthusiastic or encouraged as some when I see inflation moving higher” because “inflation is a tax and those least able to afford it generally suffer the most.” She was referring in particular to rental inflation, which she said could continue rising if the Fed doesn’t take steps to tighten monetary conditions. And while the idea of inflation as a tax that hits the poor the hardest is not a new one, its role in the current debate over what to do with interest rates marks a bit of a twist from recent years.

Widening disparities in income and wealth have over the past several years permeated national politics and helped fuel the rise of populist movements around the developed world. Against this backdrop, there has been a growing body of research, some of it produced by economists at central banks, backing the idea that easier monetary policy tends to be more progressive. That work, set against the notion that a stricter approach toward containing inflation has the best interests of the lowest-income members of society at heart, is thrusting Fed policy makers toward the center of a debate they usually like to leave to politicians. It’s becoming more contentious as Fed officials seek to declare victory on their goal of maximum employment even while the percentage of prime working-age Americans who currently have jobs is still nowhere close to the peaks of the previous two economic expansions.

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“The company, with the unfortunate Toronto Ticker “BAD”..”

Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)

Having single-handedly hounded Home Capital Group – the company which we predicted in 2015 would be “ground zero” for any potential Canadian financial crisis, and has emerged as the Canada’s equivalent to the infamous New Century which in 2007 presaged the upcoming global financial crisis – into near oblivion, noted chicken-farmer and short-seller, Marc Cohodes, over the weekend revealed the full details behind his latest short thesis: Canadian oil and gas service provider, Badger Daylighting. Badger, for those unfamiliar, is a company which uses a technique called hydrovac excavation, in which pressurized water and a powerful vacuum are used to expose buried pipes and cables. The company, with the unfortunate Toronto Ticker “BAD”, already had a bad day on Friday when it revealed earnings and revenues that badly missed consensus expectations.

Insult was added to injury after Cohodes, who most recently gained prominence for his short bet on Home Capital Group, previewed pages of a negative presentation on Badger to his Twitter feed Friday, saying that the shares are overvalued and that there are low barriers to entry. As a result, BAD shares plunged as much as 28% to C$22 in Toronto, the biggest intraday decline since November 2006, after previously dropping 4.8% YTD. To be sure, on Friday Badger CEO Paul Vanderberg, without in depth knowledge of Cohodes’ thesis, responded to Cohodes saying “my focus on that is really not to focus on it” during the earnings call and adding that “I don’t agree with the thesis.” Obviously, especially since neither he nor anyone else had seen or read it.

Chief Financial Officer Jerry Schiefelbein also responded, saying Badger is working to train new workers and managers on how to operate more efficiently, which should help reduce costs. He said the company’s first-quarter sales were “pretty good” following a couple of tough years. As for Cohodes’ criticism about low barriers to entry, Schiefelbein was quoted by Bloomberg saying tat Badger’s size gives it an advantage over mom-and-pop shops that would seek to compete with the company. Badger can tackle bigger projects for municipalities, has safety systems that larger customers require and it can move assets to markets where there is more demand, he said. “It’s not just digging holes in the ground.”

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Only interesting if his French backers want something Germany doesn’t. But then they all want the eurozone.

Eyes on Euro Fighter Macron (K.)

Macron has taken over from Francois Hollande hoping to reform not just his own country but the euro as well. “We must collectively recognize that the euro is incomplete and cannot last without major reforms,” he said during a speech at Humboldt University in Berlin this January. “It has not provided Europe with a full international sovereignty against the dollar on its rules, it has not provided Europe with a natural convergence between the different member-states.” The centrist politician warned that without reform the euro may be obsolete in 10 years. He has proposed a series of changes to improve the single currency, with the centerpiece being a budget for the eurozone that will be monitored by the European Parliament and backed by borrowing capacity so that it can finance investments, provide emergency loans via the European Stability Mechanism and help eurozone members if they suffer significant economic shocks.

Macron has also suggested the pooling of debt in the eurozone through the issuing of eurobonds, which are anathema to German conservatives. “The establishment of this budget will have to come with a convergence agenda for the eurozone, an anti-dumping agenda that will set common rules for fiscal and social matters,” added Macron in a message to his German hosts that proceeded to become clearer during his speech. “In a monetary union, a country’s success cannot be sustainably achieved to the detriment of another, which is a limit of the competitiveness approach, because competitiveness is always about comparing yourself with a neighbor,” he said. “The difficulties of one are always the problems of all.” Although Macron admits that France must carry out its own labor, market and education reforms and respect fiscal targets, his words are a direct attempt to overturn the logic and policy that has dictated the eurozone’s response to its crises since 2010 and to shape how its overall approach will evolve from this point onward.

In doing so, Macron is taking the fight to Germany, which previous French presidents failed to do. “When you look at the situation, the dysfunctioning of the euro is good news for Germany, I have to say. You benefit from this dysfunctioning,” he told his audience in Berlin. “[The] euro today is a sort of weak Deutschmark, which favors the German industry,” he added. These are views that have rarely been aired publicly by key players in the eurozone and it is little surprise that the initial response from Berlin was to suggest that Macron has enough on his plate at home to be focusing on euro reform. “German support cannot replace French policymaking,” was Merkel’s first comment on the subject after Macron comfortably won last Sunday’s vote in France.

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But Schäuble on Friday said transfers were needed. You need a fiscal union to make that work.

Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)

Now what? “More Europe” say those who believe that problems were caused by an inadequate integration process that allowed policy mistakes by incompetent national governments. To avoid similar mistakes in the future, they are now urging a unified fiscal policy to complete the monetary union. That is what the French call the “fuite en avant” – a semiotic delight roughly translated as fleeing from an unsolvable problem. Here is what that problem looks like: The fiscal union implies a euro area federal state with a common management of public finances. The area’s budget, public debt financing, tax policies, transfer payments, etc. would be managed by a euro area finance ministry. That would also require harmonization of labor, health care and education policies, and a whole range of other social welfare programs. Institutionally, this integration drive cannot stop at the finance ministry. There would also have to be a euro area executive and legislative authority to exercise administrative and democratic controls over tax and spend decisions.

[..] How could Germany, with a budget surplus last year of 0.8% of GDP and the public debt of 68.3% of GDP, accept a fiscal union with Spain running the euro area’s largest budget deficit of 4.5% of GDP and a public debt of 100% of GDP? France and Italy have similar public finance profiles. Last year, France had a second-largest euro area budget deficit of 3.4% of GDP and a public debt of 96% of GDP. During the same period, Italy ran a budget deficit of 2.4% of GDP and a public debt of 133% of GDP. This means that half of the euro area economy (France, Italy and Spain), with serious structural problems of public finances, would become part of a de-facto federal state with a fiscally sound Germany. Hard to imagine, isn’t it? And yet, that’s the program that the new French President Emmanuel Macron will apparently discuss Monday when he visits German Chancellor Angela Merkel in Berlin.

France, Italy and Spain already know the answer. Chancellor Merkel is relieved and delighted that the most dangerous anti-EU parties in France and The Netherlands lost the recent elections, but her government is firmly opposed to the euro area fiscal union. German public opinion fully shares that position. And German media of all political stripes are having a field day lampooning the idea that German taxpayers should be asked to pay for countries that cannot control their debts and deficits. This is also an awkward moment to even talk about the call on the German public purse while the country is gearing up for general elections on Sept. 24, 2017. The best that Germany can offer, under these circumstances, is a strict enforcement of existing euro area fiscal rules: Budget deficits limited to 3% of GDP and the gross public debt to 60% of GDP. About half of the euro area members are now falling far short of these criteria.

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Will the rich world ever come clean? No.

What Germany Owes Namibia For Genocide (Econ)

On October 2nd 1904 General Lothar von Trotha issued what is now notorious as “the extermination order” to wipe out the Herero tribe in what was then German South West Africa, now Namibia. “Within the German borders every Herero, with or without a gun, with or without cattle, will be shot,” his edict read. During the next few months it was just about carried out. Probably four-fifths of the Herero people, women and children included, perished one way or another, though the survivors’ descendants now number 200,000-plus in a total Namibian population, scattered across a vast and mainly arid land, of 2.3m. The smaller Nama tribe, which also rose up against the Germans, was sorely afflicted too, losing perhaps a third of its people, in prison camps or in the desert into which they had been chased.

A variety of German politicians have since acknowledged their country’s burden of guilt, even uttering the dread word “genocide”, especially in the wake of the centenary in 2004. But recent negotiations between the two countries’ governments over how to settle the matter, the wording of an apology and material compensation are becoming fraught. Namibia’s 16,000 or so ethnic Germans, still prominent if not as dominant as they once were in business and farming, are twitchy. The matter is becoming even more messy because, while the German and Namibian governments set about negotiation, some prominent Herero and Nama figures say they should be directly and separately involved—and have embarked on a class-action case in New York under the Alien Tort Statute, which lets a person of any nationality sue in an American court for violations of international law, such as genocide and expropriation of property without compensation.

The main force behind the New York case, Vekuii Rukoro, a former Namibian attorney-general, demands that any compensation should go directly to the Herero and Nama peoples, whereas the Namibian government, dominated by the far more numerous Ovambo people in northern Namibia, who were barely touched by the wars of 1904-07 and lost no land, says it should be handled by the government on behalf of all Namibians. The Namibian government’s amiable chief negotiator, Zedekia Ngavirue, himself a Nama, has been castigated by some of Mr Rukoro’s team as a sell-out. “Tribalism is rearing its ugly head,” says the finance minister, who happens to be an ethnic German.

The German government says it cannot be sued in court for crimes committed more than a century ago because the UN’s genocide convention was signed only in 1948. “Bullshit,” says Jürgen Zimmerer, a Hamburg historian who backs the genocide claim and says the German government is making a mess of things. “They think only like lawyers, not about the moral and political question.” “None of the then existing laws was broken,” says a senior German official. “Maybe that’s morally unsatisfactory but it’s the legal position,” he adds.

Read more …

May 072017
 
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Rembrandt Old Man Sitting 1631

 

The Great Productivity Slowdown (WSJ)
Take Away Finance, and Britain’s Foreign Investment Figures Collapse (Econ.)
Round 2 Of French Presidential Elections Held Amid State Of Emergency (RT)
Charles Gave Expects “Total Mayhem” In France Even If Macron Is Elected (ZH)
Angry Merkel Slaps Down Juncker For Inflaming Brexit Talks (DM)
Far-Right ‘Terror Plot’ Rocks The German Army (AFP)
World Bank Warns Of China Debt Risk From Backdoor Local Borrowing (AFR)
Spain’s Government Presses Property-Bubble Rewind Button (DQ)
We Are On The Edge Of The Abyss But We Ignore It (G.)
The End of Wild Elephants: Africa To Become One Giant Food Farm (G.)
IMF Wants Greek Opposition To Promise Not To Reverse Agreed Measures (K.)
Greece Can Never Pay Its Debts. So Why Not Admit It? (Worstall)
EU’s Moscovici: Macron Will Be Greece’s Ally (Ana)
Bangladesh Now Single Biggest Country of Origin for EU-Bound Migrants (Ind.)

 

 

One thing nobody seems to be able to figure out. And one more thing that everyone thinks should keep on growing.

The Great Productivity Slowdown (WSJ)

Equity markets have hit multiyear highs and consumer sentiment is buoyant. Yet economic productivity remains lackluster. The Labor Department announced Thursday that worker productivity fell 0.6% since January, a much bigger drop than expected. This is neither a statistical illusion nor a hangover from the Great Recession. The productivity slowdown began long before the financial crisis, and it has worsened markedly in the past six years. The drop-off extends to wholesale and retail trade, manufacturing, construction, utilities and a host of private and public services. Industries that consume and produce information technology and communications are not immune to the slowdown. From 1950 to 1970, U.S. productivity grew on average by 2.6% annually. From 1970 to 1990 it fell to 1.5%.

The information technology boom of the ’90s interrupted the slide, but since 2010 U.S. productivity growth has been in free fall. It is now roughly 0.6% a year. No wonder Federal Reserve Chair Janet Yellen recently called low productivity a “significant problem.” Various estimates suggest that had U.S. productivity growth not slowed, GDP would be about $3 trillion higher than it is today. How is this happening during a technological revolution? Some think the data are wrong. Economist Joel Mokyr explained in 2014 that metrics devised for a “steel-and-wheat economy” fail to capture adequately transformative advances in information technology, communications and the biosciences. Technology has reduced the cost of information, expanded consumer choice, and provided customization and better price comparison.

This progress has been mostly missed in current statistics. GDP also does not fully capture metrics like time saved from shopping online. Nor does it include the value of leisure and the well-being that technology provides its users. Many economists contend that properly counting free digital services from companies like Google and Facebook would substantially boost productivity and GDP growth. One of the highest estimates, calculated by economists Austan Goolsbee and Peter Klenow, stands at $800 billion. That’s a big number, but not big enough to fill a $3 trillion hole.

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Talking about reasons productivity is not growing…

Take Away Finance, and Britain’s Foreign Investment Figures Collapse (Econ.)

Here is a riddle. Britain, for now at least, is loved by foreign investors. The stock of inward foreign direct investment (FDI) in Britain’s assets and shares is larger than anywhere except America and Hong Kong. In the past decade overseas investors have splurged some £600bn ($772bn), equivalent to a third of British GDP, to acquire over 2,000 British firms. The textbooks say that foreign investments make a country more productive. The new arrivals should bring with them cutting-edge capital assets and best-practice management. So why over the past decade has Britain’s productivity barely improved? The question matters for all Britons. If productivity growth is low, then wage growth will be too. Many factors determine Britain’s weak productivity growth, including creaky infrastructure. But new official data suggest that foreign investors are doing a lot less to improve the economy than commonly assumed.

The figures classify FDI flows into around 100 industries. In 2015 financial services accounted for an astonishing 95% of net inflows. This could include, for instance, foreign funding for Britain’s burgeoning financial-technology sector. Finance was unusually dominant in 2015, though even in 2012-14 the industry made up around 60% of the net figure. Remove financial services, and overall in 2015 a tiny amount of net foreign investment flowed into Britain—a few billion pounds at best. Many industries saw “negative inflows”, suggesting that foreigners were actually disinvesting, selling assets they had acquired back to British firms, for instance. In 2015 they pulled around £20bn from the oil-and-gas sector. Perhaps £1.5bn drained from manufacturing. Finance aside, investors seem to see few profitable opportunities in Britain.

What foreign investment does flow into the “real” economy may make surprisingly little difference. Much of it seems to be about one big company horizontally acquiring another, perhaps with the aim of eliminating overlapping marketing costs (such as in the Kraft-Cadbury deal of 2010) or of acquiring a trophy asset (such as the Tata-Corus steelmaker deal of 2007). A chunk of investment in Britain, meanwhile, is a statistical by-product of big firms moving headquarters for tax purposes rather than anything meaningful. As Britain begins the process of leaving the EU, interest from foreign investors is only likely to shrink. If so, the prospects for the kind of foreign investment that lifts productivity will start to look even gloomier.

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Democracy and emergency. Odd pair.

Round 2 Of French Presidential Elections Held Amid State Of Emergency (RT)

French voters are heading to the polls to choose France’s next president. The presidential runoff between centrist Emmanuel Macron and right-wing Marine le Pen is the first to take place amid an ongoing state of emergency, introduced in the country after 2015 terrorist attacks. French authorities have introduced extra security measures for the poll. This time “more than 50,000 policemen, gendarmes will be deployed [across the country] on Sunday”, French interior ministry spokesman Pierre-Henry Brandet told AFP on Thursday.Soldiers from Operation Sentinel will also “ensure security around polling stations and [will be able] to intervene immediately in case of any incident,” he added. Operation Sentinel was launched by the French Army in the aftermath of the Charlie Hebdo attack in January of 2015 and the subsequent Paris strikes.

Paris police promised that at least 12,000 soldiers and police were to be drafted to Paris and its surrounding suburbs on Sunday, with 5,000 of securing polling stations and guaranteeing public order, as cited by AFP. People on social media have been calling for protests on May 7, regardless of the election result. The hashtags #nimacronnilepen (neither Macron, nor Le Pen) and #SansMoiLe7Mai (May 7 without me) was launched after the first round of the elections on April 23. Macron won the first round by securing 24.01 percent of the votes to le Pen’s 21.3 percent. Demonstrations have rocked France following the 1st round vote with people rallying against both candidates. “Neither fatherland, nor the boss, neither le Pen nor Macron,” banners held by protesters read. The rallies have often resulted in violence with protesters throwing stones and smoke grenades and police and officers responding with tear gas.

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“..since they knew they were going to lose the election, they created a guy in a hologram that would run for them and prevent them from losing power.”

Charles Gave Expects “Total Mayhem” In France Even If Macron Is Elected (ZH)

Venerable French investor Charles Gave has been managing money and researching markets for over 40 years; as such France’s elder statesman of asset allocation perhaps best captures the mood ahead of the most crucial Presidential election in a generation. In conversation with Dr. Pippa Malmgren, Charles breaks down national politics to understand why voters have rejected the establishment and the market impact of both outcomes, and what to expect from tomorrow’s election. First, Gave, who says “I’m not so sure that Macron will win”, is asked by Malmgren to walk RealVision viewers through what Macron’s agenda would look like in case of a victory. Gave is unable to do so for several simple reasons:

“Well, first, nobody knows. Because during the whole campaign, all these talks were on one hand, on the other. I’m in favor of apple pie, and motherhood, you see. Basically he has, to my knowledge, very little program. So he’s running. That is what Hollande said. That he was going to make some fundamental changes without hurting people. And so Macron is a big, empty suit. That’s what he is. You did the right curriculum vitae, he went to the right schools. And you have the feeling that the guy never had an original idea in his life. He was always a good student.

And moreover, there is a strong suspicion that he’s a kind of golem created by Hollande and all these guys. So since they knew they were going to lose the election, they created a guy in a hologram that would run for them and prevent them from losing power. So to a certain extent, the French political system has been captured by what you can call the Technocratic class. And whether from the left or the right, it didn’t make any difference. And this Technocratic class is presenting Macron as a brand new fellow. He is nothing brand new. These guys have been in power for 50 years for God’s sakes. So this is basically nothing.

If Le Pen wins, it’s pretty simple. The bond market in France, Italy, Spain cannot open on Monday morning. And I suppose the euro is dead in the following week. And then you have to buy Europe like crazy. Southern Europe. Why Southern Europe? Because it is Germany’s markets that would bear the brunt of the selloff, as the dissolution of the euro and European Union would effectively bring about the end of Germany’s economic hegemony (while at the same time benefitting France). The Germans have made a colossal mistake, which is that they have all the production in Germany. So they’re extremely efficient, well-organized, and they have developed massive current account surpluses. Half of that surplus is in cars. The margin on cars is around 4%. Imagine that the euro breaks down.

The deutschmark comes back. The deutschmark goes up 15, 20%. And the whole German industry, all the production base in Germany, becomes bankrupt in no time at all. Compare that to France. France we have magnificent big companies that have been intelligent enough to produce everywhere in the world, to operate from everywhere in the world, and be totally independent from what’s happening in France. What they have in France is their headquarters. And that’s about it. So if Europe breaks, you should be long France on the stock market, and short Germany. Big time.”

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Good cop bad cop. Or should I say: here’s how you can tell who’s the boss in Europe?!

Angry Merkel Slaps Down Juncker For Inflaming Brexit Talks (DM)

A rift emerged between Angela Merkel and Jean-Claude Juncker last night after she reportedly accused him of ‘inflaming’ Brexit talks by leaking details of his row with Theresa May. The German Chancellor’s relations with the EU Commission president are said to have ‘soured’ after Mr Juncker described Mrs May as living in ‘another galaxy’ following a recent dinner. According to German newspaper Der Spiegel, which has close links with Merkel’s government, she believes the leaking of private conversations – blamed on Juncker – ‘is not helpful in heating up the mood in this way’. The Der Spiegel article, headlined ‘Merkel angered by Juncker at Brexit dinner’, said it had made her mood ‘sour’ towards him. Juncker’s ‘another galaxy’ comment was made in a telephone call with Mrs Merkel after he clashed with Mrs May over dinner in Downing Street 11 days ago.

Juncker reportedly told Mrs Merkel: ‘It went very badly. She is in a different galaxy.’ The leak was blamed on Mr Juncker or his formidable German chief of staff, Martin Selmayr. In remarks clearly aimed at Mr Juncker, a furious Mrs May responded to the leaks last week by accusing ‘the bureaucrats of Brussels’ of trying to influence the General Election. But a defiant Mr Juncker took another swipe at Britain on Friday by claiming at a European Union summit in Italy that the English language was already ‘losing its importance in Europe’. The Der Spiegel article echoed public comments made by Mrs Merkel on Friday in which she struck a markedly more conciliatory tone towards Mrs May than outspoken Mr Juncker. She stressed that she would approach Brexit negotiations ‘fairly and constructively’. Mrs Merkel denied she aimed to cause trouble in the Brexit talks and said she wanted ‘clarity and security as quickly as possible’ for EU residents in Britain, including about 100,000 Germans.

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Germany’s much less serene than it seems.

Far-Right ‘Terror Plot’ Rocks The German Army (AFP)

The bizarre case of a racist soldier allegedly plotting an attack while posing as a Syrian refugee and several abuse scandals have sparked a war of words between Germany’s defence minister and the military. It is a dangerous political battle for Ursula von der Leyen, the first woman in charge of the armed forces, who is often mentioned as a potential successor to Chancellor Angela Merkel. The mother-of-seven has sternly criticised military “attitude and leadership problems”, highlighted by the case of the soldier and by recent sexual abuse and hazing scandals. This in turn has made her a target of chastened rank-and-file soldiers who charge she is tarring them all while dodging personal responsibility after more than three years on the job.

The escalating conflict started with the arrest a week ago of 28-year-old army lieutenant Franco Albrecht, who was stationed at a Franco-German base near Strasbourg. He came to the notice of the authorities after Austrian police caught him with a loaded handgun at the Vienna airport in February. The subsequent investigation found that, amid Germany’s 2015 mass influx of refugees, he had created a fake identity as a Damascus fruit seller called “David Benjamin”. Incredibly, the German who speaks no Arabic managed to gain political asylum, a spot in a refugee shelter and monthly state benefits for his fictitious alter ego. Prosecutors charge that Albrecht harboured far-right views and, with at least one co-conspirator, plotted an attack with the apparent aim of discrediting foreigners.

Media reports say he kept “death lists” with the names of top politicians, including former president Joachim Gauck, some cabinet ministers and left-leaning, anti-fascist MPs. It has since emerged that the lieutenant had expressed rightwing extremist views in a master’s thesis he submitted in 2014, in which he theorised about the end of Western civilisation through immigration. In the paper seen by AFP, he argued that immigration was causing a “genocide” in western Europe, adding that “this is a mathematical certainty”. However, the paper was buried, without disciplinary action – something the minister attributed to a “misunderstood esprit de corps” and superior officers who “looked the other way”.

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I’ve mentioned the power of Chinese shadow banking a thousand times. That power is still growing.

World Bank Warns Of China Debt Risk From Backdoor Local Borrowing (AFR)

The World Bank has warned that Chinese local governments remain addicted to off-budget borrowing, despite Beijing’s efforts to impose fiscal discipline on localities and curb ballooning debt. Runaway growth of local government debt is widely seen as a huge risk for China’s economy and financial system. Provinces, cities and counties borrowed heavily to spend on infrastructure to keep economic growth humming after the 2008 financial crisis. But the practice has continued and economists warn that returns on new investment are falling and white elephants are common. Many projects do not produce enough cash flow to service their debt. In 2014 China moved to eliminate borrowing through special-purpose vehicles, which local officials had used to circumvent a legal ban on direct borrowing.

Under the moniker of “close the back door, open the front door”, China’s parliament ended the legal ban, enabling localities to borrow within clear limits set by Beijing. Meanwhile, local government finance vehicles were ordered to cease disguised fiscal borrowing. To deal with legacy debt, Rmb8tn ($US1.2tn) in outstanding local government funding vehicle (LGFV) borrowing was converted into on-budget provincial debt through a bond swap. But growth of LGFV debt has actually accelerated since 2015, the World Bank warned in a confidential March presentation obtained by the Financial Times. Despite the swap programme, “LGFVs continued to borrow and increase their liabilities at a very rapid pace” in 2015-16, the bank’s lead China economist John Litwack and analyst Luan Zhao said.

Local governments and their LGFVs account for “the vast majority of public expenditures and public investment”, they noted, adding that “government and LGFV finances [are] intertwined in complicated ways, making separation difficult in practice”. Growth of LGFV liabilities accelerated from 22% in 2014 to 25% in 2015 and stayed high at 22% in the first half of 2016, the authors found. The presentation noted that Beijing’s effort to stop the use of LGFVs as quasi-fiscal entities may have unintentionally encouraged them to increase borrowing. Local fiscal authorities are now forbidden from officially monitoring LGFV finances, since to do so would imply that the government stands behind their debt. “Instructions to no longer even monitor finances of LGFVs can give a dangerous impression of ‘free money’,” the presentation warned.

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Especially in euro countries, governments need mortgage loans for money/credit creation. Their governments and central banks lost that ability.

Spain’s Government Presses Property-Bubble Rewind Button (DQ)

After spending the last few years groggily getting back onto its feet following the collapse of one of the most spectacular — and destructive — real estate bubbles of this century, Spain’s economy is once again being primed for another property boom. In the last quarter prices registered a year-on-year rise of 4.5%. Rents are also surging, though the country is still home to over half a million vacant properties. The cost of renting in Madrid and Barcelona, which between them account for 16% of those vacant properties, has reached historic highs, according to a new study by the online real estate market place Idealista. In Madrid, rents have risen on average by 27% since 2013; in Barcelona they’ve surged over 50%.

This trend is being driven by two main factors: the recent explosion in tourist rentals, as well as a general shift in consumer behavior as more and more people choose (or have little choice but) to rent rather than buy property. While rents soar, Spain’s mortgage market, the biggest source of profits for the nation’s banks, is also showing signs of life. In 2016 the number of mortgages issued rose by just over 10% to 281,328. But that’s merely a fraction of the 1,324,522 mortgages signed in 2006, just before the bubble burst. The banks would like nothing better than to issue more and bigger mortgages, but even with interest rates at their lowest point in history, most people either can’t afford the current prices or don’t want to take on more debt. Spain’s fragile coalition government is determined to change that.

In its latest budget announcement it revealed plans to set aside billions of euros in 2018 for publicly funded mortgage subsidies. Young people under the age of 35 who are earning gross incomes of less than €1,600 per month will be eligible for payments of up to €10,800 to help them buy their first home. There will also be rental subsidies for people under the age of 35, for up to half the price of the rent. [..] In Spain today there are roughly two million fewer people under the age of 40 in full-time employment than there were in 2006, due to a variety of factors: demographics (i.e. there are now fewer people under the age of 40), rampant job destruction, and the mass exodus of young Spaniards to greener pastures. Even for many of those that chose to stay behind and actually found work, the reality is still alarmingly bleak.

According to the Spanish daily ABC, of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs. Since the Financial Crisis, precarity has become the ubiquitous reality for most young Spaniards. Many end up earning so little in jobs that offer scant, if any, financial security that they have little choice but to stay at home with their parents, sometimes well into their thirties. According to data released this week by Eurostat, the average Spaniard does not move out of the family residence until they are 29 years old. If Spain’s new, dwindling generation of “workers” cannot afford to leave home, who will buy or rent the properties sitting idle on the balance sheets of the banks, “bad bank” Sareb, and the global private equity firms that piled into the market a few years ago?

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We are designed to ignore distant danger, so we can better prepare for what’s near.

We Are On The Edge Of The Abyss But We Ignore It (G.)

[..] the evidence tells us that so powerful have humans become that we have entered this new and dangerous geological epoch, which is defined by the fact that the human imprint on the global environment has now become so large and active that it rivals some of the great forces of nature in its impact on the functioning of the Earth system. This bizarre situation, in which we have become potent enough to change the course of the Earth yet seem unable to regulate ourselves, contradicts every modern belief about the kind of creature the human being is. So for some it is absurd to suggest that humankind could break out of the boundaries of history and inscribe itself as a geological force in deep time. Humans are too puny to change the climate, they insist, so it is outlandish to suggest we could change the geological time scale.

Others assign the Earth and its evolution to the divine realm, so that it is not merely impertinence to suggest that humans can overrule the almighty, but blasphemy. Many intellectuals in the social sciences and humanities do not concede that Earth scientists have anything to say that could impinge on their understanding of the world, because the “world” consists only of humans engaging with humans, with nature no more than a passive backdrop to draw on as we please. The “humans-only” orientation of the social sciences and humanities is reinforced by our total absorption in representations of reality derived from media, encouraging us to view the ecological crisis as a spectacle that takes place outside the bubble of our existence.

It is true that grasping the scale of what is happening requires not only breaking the bubble but also making the cognitive leap to “Earth system thinking” – that is, conceiving of the Earth as a single, complex, dynamic system. It is one thing to accept that human influence has spread across the landscape, the oceans and the atmosphere, but quite another to make the jump to understanding that human activities are disrupting the functioning of the Earth as a complex, dynamic, ever-evolving totality comprised of myriad interlocking processes.

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China is a major factor in this, as much as growing population is.

The End of Wild Elephants: Africa To Become One Giant Food Farm (G.)

Elephants are in big trouble. Even if we beat poaching and illegal trade, their potential doom has been sealed in projections for population growth, and has already been priced into the commonly accepted solutions to how we humans plan to feed ourselves well into the century – by looking to Africa to be our next big breadbasket. Africa is home to 1.2 billion people, but by 2050 that number is likely to double, and may well double again by the end of the century to reach well over 4 billion. Globally, we may exceed 11 billion souls. This is of course a cause for celebration and a testament to the huge strides we’ve made in public health. We’ve all but beaten polio and yellow fever, mother and child mortality has plummeted, and we’re making headway in the fight against malaria.

Another cause for celebration is the confidence, energy and entrepreneurship in many parts of the African continent – a spirit that is unmatched anywhere in the world. It’s easy to see we’re on the cusp of enormous positive change. The obvious flipside is the environmental disaster waiting to happen. This has been compounded by number crunchers who are leaving the future of our planet’s fragile ecosystems out of the equation as they try to come up with answers about how to fill billions of bellies. Several scenarios for cropland expansion – many of them focusing on Africa’s so-called “spare land” – have already effectively written off its elephants from having a future in the wild. These projections have earmarked a huge swathe of land spanning from Nigeria to South Sudan for farming, or parts of west Africa for conversion to palm oil plantations.

Economies are already being structured for the future, and are locking us into an unsustainable path to the tune of Feed the World – but with Africa providing the food. Some models suggest that 29% of the existing elephant range is affected by infrastructure development, human population growth and rapid urban and agricultural expansion; that may rise to 63% by 2050. If we continue like this, elephants will see more of their migration routes become narrow corridors before being eventually severed. Inevitably, as competitors for space, elephants will fight it out with us. But being the dominant species on this planet, we will win. And Africa will become a giant farm.

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ROund 2 of democracy and emergency.

IMF Wants Greek Opposition To Promise Not To Reverse Agreed Measures (K.)

The European Commission will bring down its 2017 growth estimate for Greece next week, a eurozone official said on Friday, adding that the IMF wants main opposition New Democracy to make a commitment not to reverse the reforms that the government has agreed to in the context of the bailout review should it come to power. “This is important for them,” the official said of the IMF’s demand, while adding that the eurozone has not asked for such a commitment, although it agrees it is always better to have consensus on the reforms applied. The same official said that the Commission will reduce its estimate for the Greek economic recovery this year from 2.7% “to around 2%” on May 11.

Sources say that a downward revision by the Commission of its forecast to 1.9% would not lead to a shift in its general estimate regarding Greece’s fiscal course, so it does not entail the risk of any new measures. The latest IMF forecast regarding the Greek economy was for a 2.2% expansion. If all goes well, the disbursement of the next bailout tranche will take place just before the July repayment deadline, when Greece must pay €7.4 billion to its creditors. As the European official said, if there is a final agreement at the May 22 Eurogroup, which is the optimum scenario, it will take four to five weeks for the tranche payment to clear the parliaments of eurozone member-states where necessary.

If one also takes into account the time needed for the approval by the IMF council, it will take up to six weeks, which means early July. The amount of the tranche will come to about 7 billion euros, plus the funds needed for the state to pay off its expired debts to suppliers and taxpayers until the next review comes up. The disbursement will be paid in a lump sum, but only after all prior actions have been ratified by Greece. The second review had no fewer than 140 prior actions required, of which 40 have been satisfied. Of the remainder there are about 80 that either require new legislation or presidential decrees.

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“..what should have happened was the standard IMF programme: a haircut on the debt, devalue the currency and a bit of a loan to tide things over until growth returned.”

Greece Can Never Pay Its Debts. So Why Not Admit It? (Worstall)

Peace, sweetness and light break out in the Balkans as we’re told that the EU, the eurogroup, the IMF, Greece, the ECB and Uncle Tom Cobley agree over a Greek debt deal. Except, of course, that agreement hasn’t been reached, because the major point at issue is still being glossed over. That major point being that Greece simply isn’t going to repay all of that debt. So we still need to work out who is going to lose money, and when. Debts which cannot be repaid will not be repaid. That’s why we have bankruptcy in the first place. Or, when it comes to sovereign nations, we have debt rescheduling and IMF programmes instead of bankruptcy. When the Greek crisis first blew up, what should have happened was the standard IMF programme: a haircut on the debt, devalue the currency and a bit of a loan to tide things over until growth returned.

This is similar to the approach taken by Iceland – which has already recovered while Greece languishes – and is what the IMF has been doing for decades in other places. The one thing standing between Greece and this approach was the euro. In order to protect the integrity of the single currency, debts to the private sector banks were refinanced by public money from varying combinations of the EU itself, the ECB, the eurogroup (the group of eurozone finance ministers), the IMF and so on. This is the crucial point. There are no private sector capitalists left. If there were, we could simply say “you lost your money, better luck next time”. Instead there are only official creditors, run by politicians, who have their voters wondering what has happened or will happen to their money. For it is still true that Greece cannot repay those debts, and therefore Greece will not repay them.

All that can change is who will lose money and when. Unsurprisingly, politicians are keen to delay the inevitable until they have retired and are collecting their pensions. That the Greeks have to see theirs cut in the interim is just bad luck. This may sound terribly cynical but allow me explain the thinking. There are the true federalists happy to sacrifice a country on the altar of the euro and ever closer union, as long as the losses – losses of their own voters’ money – come to light later.

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But Merkel will not, and that’s what counts.

EU’s Moscovici: Macron Will Be Greece’s Ally (Ana)

French presidential candidate Emmanuel Macron will support Greece and be Athens’ ally if he is elected, European Commissioner for Economic and Financial Affairs, Pierre Moscovici told the Athens-Macedonian News Agency in an exclusive statement, one day before the second round of the elections in France. “I have no doubt that with Emmanuel Macron as President, yes, Greece will continue to have a friend in France, a president friend and a government friend, and this is why these elections are also important for the Greeks,” Moscovici said, adding he has worked with Macron in the past for the Greek program.

“I know Emmanuel Macron very well. We worked together when I was finance minister, when he was deputy secretary-general next to Francois Hollande, to find positive positions concerning Greece, for Greece. France is a country who’s a friend of Greece. It will remain [a friend]” he continued. Moscovici said that being friend of Greece means, on the one hand, to encourage and follow the efforts for reforms until the end but it also means solidarity from its partners.

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Europe must find an actual response to this, or face a lot of struggle. There are too many people living in all these countries.

Bangladesh Now Single Biggest Country of Origin for EU-Bound Migrants (Ind.)

As the refugee crisis enters its fourth year, the demographics of the men, women and children arriving on Europe’s shores are undergoing an unprecedented shift. Syrians have so far made up the largest group of migrants attempting treacherous journeys across the Mediterranean Sea, followed by Afghans, Iraqis, Eritreans and sub-Saharan Africans. But as smugglers in Libya continue to expand their ruthless human trade, their counterparts in Asia are seeing an opportunity. In the first three months of last year just one Bangladeshi arrived in Italy, but the number for 2017 stands at more than 2,800, making the country the largest single origin of migrants currently arriving on European shores.

Those rescued in the Mediterranean Sea have told aid workers they paid more than $10,000 each to be taken from Dhaka to Dubai or Turkey and onwards to Libya, where the violence and chaos engulfing the fractured country is fuelling powerful smuggling networks. The International Organisation for Migration (IOM) said the emerging route had dramatically changed the demographics of asylum seekers arriving in Italy, who until now have largely hailed from sub-Saharan Africa. “The thing that’s really changing is the main nationality of the migrants, and the number coming from Bangladesh,” IOM’s Flavio di Giacomo told The Independent.

“By the end of March last year only one Bangladeshi had arrived in Italy – and this year the number is more than 2,831 for the same period.” Some migrants taken ashore in Sicily and Apulia said their trip to Libya was organised by an “agency” that provided them with a working visa for between $3,000 and $4,000. “From Bangladesh, they first travelled to Dubai and Turkey, and finally reached Libya by plane,” an IOM spokesperson said. “At the airport, an ‘employer’ met them and took their documents.”

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Jan 032017
 
 January 3, 2017  Posted by at 9:59 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Robert Doisneau Françoise Gilot et Pablo Picasso 1952

Fears Of ‘Massive’ Global Property Price Fall In ‘Dangerous’ Conditions (Tel.)
Is Trump About to Debunk the Media’s ‘Putin-gate’ Conspiracy Theory? (AntiWar)
Assange: Obama Admin Trying To ‘Delegitimize’ Trump (Hill)
Trump Says US Safe From North Korean Nuclear Strike – No Thanks To China (G.)
China Needs To Let Companies Go Bust To Support The System – Xie (CNBC)
Holes in China’s Currency Wall (BBG)
China Starts 7,500 Mile Freight Train to London as Xi Boosts Trade Ties (BBG)
Finland Trials Basic Income For Unemployed (AP)
US Special Operations Numbers Surge In Africa’s Shadow Wars (I’Cept)

 

 

“..raising the risk of massive price falls if markets overheat, according to the OECD..” Pretty sure they are overheated.

Fears Of ‘Massive’ Global Property Price Fall In ‘Dangerous’ Conditions (Tel.)

Property prices have climbed to dangerous levels in several advanced economies, raising the risk of massive price falls if markets overheat, according to the OECD. Catherine Mann, the OECD’s chief economist, said the think-tank was monitoring “vulnerabilities in asset markets” closely amid predictions of higher inflation and the prospect of diverging monetary policies next year. Ms Mann said a “number of countries”, including Canada and Sweden, had “very high” commercial and residential property prices that were “not consistent with a stable real estate market”. She also said property price falls in Britain following the vote to leave the EU could “be good for the UK” if the adjustment is borne mainly by foreign investors.“We’ve already started to see some changes in real estate prices in the UK, [particularly in] the London market,” said Ms Mann.

“[What’s] interesting in terms of the implications for the UK economy is who bears the burden – who bears the adjustment cost. If it’s a non-resident then lower house prices could actually be good for the UK.” The warning comes as research by Countrywide reveals that the number of homes sold in the UK for more than the asking price has tumbled in the last year. In January 2016, 41.5pc of homes for sale in London were sold above the asking price. But this fell to just 23pc in November. Nationally, the fall was less steep: from 29.8pc in March to 23.1pc in November. The data suggest that the UK housing market could be at an inflection point with activity slowing throughout 2016, particularly in the capital, as sellers accepted lower offers while buyers deserted the market amid uncertainty over Brexit.

While prices did not fall across the country last year, there was a slowdown in activity as people chose not to buy a home. Johnny Morris, head of research at Countrywide, said: “There isn’t the same level of competition in the market now.” The Royal Institution of Surveyors reported that the number of new buyer inquiries has been at very low levels in the second half of the year. The number of new properties on the market has also been at record lows, helping to prop up prices. Mr Morris added: “We expect prices to fall next year as this slowdown works through the system. Generally the first thing to change will be the number of transactions, and then after the gap between what people will pay and how much people will accept opens up quickly and takes a while to close. Sales slow, and then there is a price adjustment.”

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Yeah, please, end this B movie.

Is Trump About to Debunk the Media’s ‘Putin-gate’ Conspiracy Theory? (AntiWar)

“It wouldn’t be a bad opening for a Tom Clancy novel about the Cold War” – that’s how the Los Angeles Times described the sequence of events leading up to the expulsion of 35 Russian diplomats (“spies”) and the latest face-off between Washington and Moscow. Indeed the whole episode of has about it a fictional aura, which is, after all, only appropriate, since the entire basis of this latest cold war drama is pure invention. The Russian “spy nest” had supposedly been in use since 1972 – but our Keystone Kops were just now getting around to dismantling it. Oh well, better late than never! It’s a 45-acre compound on the Maryland shore, about 60 miles from Washington, a place where Russian diplomats went to relax with their families.

Neighbors said they never saw anything the least bit off, and that the Labor Day picnics to which they were invited featured plenty of really good vodka. The head of the town council, a retired Marine, told the Los Angeles Times: “They’re good neighbors, and have been the whole time they’ve been there.” On New York’s Long Island a similar scenario unfolded: an estate long the site of Russian diplomats relaxing with their families is raided by the feds, and impounded, while baffled locals look on. It’s all part of the security theater performed by Obama’s dead-enders, as they do their best to cast a long shadow over the incoming Trump administration. And like any performance, it comes with a little booklet explaining the provenance of the piece, in this case a “report” reiterating in a most unconvincing manner the assertions we’ve been hearing since Election Day: that Trump’s victory was the culmination of an elaborate Russian conspiracy, a remake of “The Manchurian Candidate,” only this time with computers.

And just to add a little extra frisson to the mix, as the clock ticked toward 2017 the Washington Post ran a story alleging that those omnipotent Russkies had hacked into Vermont’s electricity grid – and were about to turn out the lights! Except they didn’t, they weren’t, and it was all a bit of that “fake news” WaPo has been warning us about. The “Russian malware” was found on a laptop that wasn’t even connected to the internet. And it wasn’t Russian malware, it was Ukrainian. Oh, the drama! Except there wasn’t any – at least, not enough for a Tom Clancy novel. [..] Is Trump about to blow this whole phony “Put did it” scam wide open? It wouldn’t surprise me in the least. What we are seeing playing out is the reaction of the swamp creatures as Trump proceeds to drain their natural habitat. That screeching roaring sound you hear is their collective outrage as the implications of Trump’s triumph become apparent.

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Don’t think Assange ever figured he was going to end up defending Trump.

Assange: Obama Admin Trying To ‘Delegitimize’ Trump (Hill)

WikiLeaks founder Julian Assange says there’s an “obvious” reason the Obama administration has focused on Russia’s alleged role in Democratic hacks leading up to Donald Trump’s electoral win. “They’re trying to delegitimize the Trump administration as it goes into the White House,” Assange said during an interview with Fox News’s Sean Hannity airing Tuesday night, according to a transcript of excerpts from the network. “They are trying to say that President-elect Trump is not a legitimate president,” Assange said during the interview, which was conducted at the Ecuadorian embassy in London where he has been staying. “Our publications had wide uptake by the American people, they’re all true,” Assange continued. “But that’s not the allegation that’s being presented by the Obama White House.”

Assange reiterated the group’s denial that Russia was the source of the Democratic documents released over the summer. “Our source is not a state party, so the answer for our interactions is no,” he said. In December, Assange told Hannity that the documents the anti-secrecy group received looked “very much like they’re from the Russians” but said his source was not them. When asked if he thought WikiLeaks influenced the 2016 election, Assange pointed to private comments from members of the Democratic National Committee (DNC) and Hillary Clinton’s campaign in documents published by the group. “Did [WikiLeaks] change the outcome of the election? Who knows, it’s impossible to tell,” Assange said. “But if it did, the accusation is that the true statements of Hillary Clinton and her campaign manager, John Podesta, and the DNC head Debbie Wasserman Schultz, their true statements is what changed the election.”

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“He has described Kim as a “maniac”, but suggested in June 2015 that he would be willing to invite Kim to Washington for talks over hamburgers.”

Trump Says US Safe From North Korean Nuclear Strike – No Thanks To China (G.)

Donald Trump has said no North Korean nuclear bomb will reach the US mainland, a day after the regime in Pyongyang claimed it was close to test-launching an intercontinental ballistic missile (ICBM). The president-elect – who has yet to articulate his incoming administration’s approach to North Korea’s nuclear weapons programme – also took another swipe at China, accusing Beijing of failing to rein in the North’s nuclear ambitions. “North Korea just stated that it is in the final stages of developing a nuclear weapon capable of reaching parts of the US. It won’t happen!” Trump tweeted. It was not clear what Trump meant: whether he believed North Korea was incapable of developing a reliable ICBM, or that the US would prevent it doing so.

He went on to reignite his verbal tit-for-tat with Beijing, this time linking trade to what he called China’s unwillingness to exert pressure on Pyongyang over its nuclear weapons programme. “China has been taking out massive amounts of money and wealth from the US in totally one-sided trade, but won’t help with North Korea. Nice!” [..] Since winning the US presidential election, Trump has not indicated he will abandon the Obama administration’s policy of isolating North Korea. He has described Kim as a “maniac”, but suggested in June 2015 that he would be willing to invite Kim to Washington for talks over hamburgers. North Korea is thought to be some way off developing a nuclear warhead capable of reaching the US, but some experts said Kim’s ICBM claims should be taken seriously, citing the progress that has been made since he became leader in late 2011.

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Zombie country.

China Needs To Let Companies Go Bust To Support The System – Xie (CNBC)

China posted positive manufacturing numbers this week, but there are more problems that need to be fixed in the system that is acknowledged, an economist said Tuesday. “(You cannot just) focus on overcapacity and not focus on the government policy of subsidizing production or the financial system, that is, basically rolling over non-performing loans to make it look like they are still performing,” said independent economist Andy Xie. “China has been stretching the cycle and trying to roll over all the loans so nobody goes bankrupt,” he told CNBC’s Squawk Box.

The Chinese government, he said, needs to stop boosting industry by subsidizing investment as this will further contribute to over-capacity—which is in turn funded by households invested in the property bubble. “This is destroying household sector demand and you get into a vicious cycle. The industry sector can never become healthy,” he said. Xie’s comments come on the back of the release of China Caixin’s December manufacturing Purchasing Managers’ Index (PMI) which marked its fastest rate of improvement in three years.

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“.. the history of such endeavors shows that people care much more about preserving their wealth than observing the letter of the law…”

Holes in China’s Currency Wall (BBG)

China’s latest great wall against capital outflows is likely to be as effective at stemming overseas real estate purchases as the real thing was at keeping out invaders.The country’s foreign-exchange regulator is requiring citizens who want to move money abroad to provide extra information on bank forms introduced Jan. 1, including a pledge that the funds won’t be used to purchase property.Beijing has made several attempts in recent months to rein in the nation’s voracious appetite for overseas bricks and mortar. In November, the government imposed a ban on foreign property purchases worth $1 billion or more by state-owned enterprises. Now, even the $50,000 that every individual is allowed to convert each calendar year can henceforth be used only for non-investment purposes such as travel or medical services.

[..] Unofficial conduits for moving money out of China abound. The continued demand for dollar-denominated insurance policies in Hong Kong — even after the use of China UnionPay Co. credit and debit cards was outlawed for such purchases — is evidence enough of that.One popular tactic is known as “smurfing” – breaking sums down into small increments that avoid official scrutiny, named after the little blue cartoon characters who as small individuals constitute a larger whole. People needing to move large amounts out of China can recruit friends and relatives to help carry the load in this way.Offshore trading companies – with the cover of export and import invoicing — have more leeway to move money in and out of the country, offering another route that can be used to finance overseas property purchases.

China has acknowledged a problem with fake invoicing. Still, a more stringent clampdown would risk disrupting trade at a time of weak growth.This is the rub for China’s foreign-exchange regulators. Capital controls are inevitably porous, especially for a country that’s as plugged into the global trade and economic system as China. And the demand for offshore property remains seemingly insatiable.Rich Chinese aim to have at least a third of their wealth outside the country and real estate is their most popular overseas investment, according to the Hurun Research Institute. About 60 percent of individuals surveyed said they plan to buy offshore property in the next three years, the wealth researcher said in an October report.

The reasons for the exodus are well known. China’s economy is slowing, domestic real estate is becoming increasingly unaffordable and the yuan is depreciating. In these circumstances, foreign property promises capital preservation. Until these fundamental factors turn around, Chinese authorities will be pushing against the tide.The greatest value of the latest controls may be in the signal they send to the general population: China is serious about reining in outflows, and those who are caught abusing the system will be dealt with severely. That may give some buyers pause. But the history of such endeavors shows that people care much more about preserving their wealth than observing the letter of the law. This is another clampdown that will fail.

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That’s just hilarious. Marco Polo here we come.

China Starts 7,500 Mile Freight Train to London as Xi Boosts Trade Ties (BBG)

China started a freight train to London as part of President Xi Jinping’s efforts to strengthen trade ties with Europe, Xinhua reported, citing state-owned China Railway Corp. The train, departing from Yiwu in eastern Zhejiang province, will cover more than 12,000 kilometers (7,500 miles) in about 18 days before reaching the British city, carrying goods such as garments, bags and suitcases among other items, Xinhua said Monday. The freighter will pass through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France.

London is the 15th city in Europe to be added to China’s freight train services to the continent as Xi seeks to reinforce commercial links with markets across Asia, Africa, the Middle East and Europe. In 2013, Xi unveiled his so-called Belt-and-Road initiative, making transport lines the centerpiece of his efforts to create a modern Silk Road. China has initially set aside about $40 billion in a fund to finance roads and railways abroad under the plan, while the nation’s trade with countries along the routes could reach $2.5 trillion in about a decade, Yao Gang, the then vice chairman of China Securities Regulatory Commission, said in 2015.

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It’s misleading to call this basic income. It leads away from the real thing.

Finland Trials Basic Income For Unemployed (AP)

Finland has become the first country in Europe to pay its unemployed citizens a basic monthly income, amounting to €560 (£477/US$587), in a unique social experiment that is hoped to cut government red tape, reduce poverty and boost employment. Olli Kangas from the Finnish government agency KELA, which is responsible for the country’s social benefits, said on Monday that the two-year trial with 2,000 randomly picked citizens receiving unemployment benefits began on 1 January. Those chosen will receive €560 every month, with no reporting requirements on how they spend it. The amount will be deducted from any benefits they already receive. The average private sector income in Finland is €3,500 per month, according to official data.

Kangas said the scheme’s idea was to abolish the “disincentive problem” among the unemployed. The trial aimed to discouraged people’s fears “of losing out something”, he said, adding that the selected persons would continue to receive the €560 even after receiving a job. A jobless person may currently refuse a low-income or short-term job in the fear of having his financial benefits reduced drastically under Finland’s generous and complex social security system. “It’s highly interesting to see how it makes people behave,” Kangas said. “Will this lead them to boldly experiment with different kinds of jobs? Or, as some critics claim, make them lazier with the knowledge of getting a basic income without doing anything?”

The unemployment rate of Finland, a nation of 5.5 million, stood at 8.1% in November with some 213,000 people without a job – unchanged from the previous year. The scheme is part of the measures by the centre-right government of Finland’s prime minister, Juha Sipila, to tackle unemployment. Kangas said the basic income experiment may be expanded later to other low-income groups such as freelancers, small-scale entrepreneurs and part-time workers.

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Obama’s legacy is not what it seems.

US Special Operations Numbers Surge In Africa’s Shadow Wars (I’Cept)

Africa has seen the most dramatic growth in the deployment of America’s elite troops of any region of the globe over the past decade, according to newly released numbers. In 2006, just 1% of commandos sent overseas were deployed in the U.S. Africa Command area of operations. In 2016, 17.26% of all U.S. Special Operations forces – Navy SEALs and Green Berets among them – deployed abroad were sent to Africa, according to data supplied to The Intercept by U.S. Special Operations Command. That total ranks second only to the Greater Middle East where the U.S. is waging war against enemies in Afghanistan, Iraq, Syria, and Yemen. “In Africa, we are not the kinetic solution,” Brigadier General Donald Bolduc, the chief of U.S. Special Operations Command Africa, told African Defense, a U.S. trade publication, early this fall. “We are not at war in Africa – but our African partners certainly are.”

That statement stands in stark contrast to this year’s missions in Somalia where, for example, U.S. Special Operations forces assisted local commandos in killing several members of the militant group, al-Shabab and Libya, where they supported local fighters battling members of the Islamic State. These missions also speak to the exponential growth of special operations on the continent. As recently as 2014, there were reportedly only about 700 U.S. commandos deployed in Africa on any given day. Today, according to Bolduc, “there are approximately 1,700 [Special Operations forces] and enablers deployed… at any given time. This team is active in 20 nations in support of seven major named operations.” Using data provided by Special Operations Command and open source information, The Intercept found that U.S. special operators were actually deployed in at least 33 African nations, more than 60% of the 54 countries on the continent, in 2016.

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May 262016
 
 May 26, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »
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NPC Graf Zeppelin over Capitol 1928

Britain’s Property Market Is Going To Implode (BI)
Trillions in Debt—but for Now, No Reason to Worry (WSJ)
IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)
China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)
Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)
Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)
Varoufakis: Australia Lives In A Ponzi Scheme (G.)
Venezuela Sells Gold Reserves As Economy Worsens (FT)
Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)
Quantitative Easing and the Corruption of Corporate America (DMB)
Brexit, And The Return Of Political Lying (Oborne)
We Have Entered The Looting Stage Of Capitalism (PCR)
France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)
Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)
Bayer Could Get ECB Financing For Monsanto Bid (R.)
Putin Closes The Door To Monsanto (DDP)

No doubt here. Ditto for all bubbles.

Britain’s Property Market Is Going To Implode (BI)

Property prices in Britain may be surging due to a horrendous imbalance of supply and demand — but the market is poised to implode. Why? Because Britons are not earning enough money to either get on the housing ladder or are spending such a large portion of their wages on mortgages that may not be sustainable. Well, not unless everyone suddenly gets a huge pay rise over the next year or so. That’s the assumption in the latest figures from think tank Resolution Foundation, which show that lower- and middle-income households are spending 26% of their salaries on housing, compared to 18% back in 1995. In London, households spend 28% of their income on housing. The think tank said this is the equivalent to adding 10 percentage points onto income tax.

Only the rich are not feeling the pressure of rising house prices. Higher-income households spend 18% of their income on housing, compared to 14% in 1995. The average price to buy a house in Britain now stands at £291,504, according to the Office for National Statistics. Meanwhile, the average London property price is at a huge £551,000. To put this into perspective, Resolution Foundation estimated that median income, at £24,300, is only around 3% higher than it was when the credit crunch hit in 2007/2008. [..] the house price-to-earnings ratio is near the pre-crisis peak. Considering the average deposit to secure a home is around 10% of the total property price, this means Britons are taking on huge amounts of debt and eating into the little savings they have to buy a home.

[..] the market is poised on a knife edge between interest rates and wages. If interest rates were to rise — and they will eventually — it could prove a major problem for the Britons who already spend 25-28% of their salaries on housing. Similarly, if another downturn depresses wages, mortgage payments will become an increasing portion of their income even without an interest rate increase. That situation is pricing out low- and middle-income people from the market, as the chart shows. Ownership rates in this group have sunk from nearly 60% in 1997 to just 25% today. That’s how fragile the housing market is: With those buyers unable to afford to buy, the market is dependent on a thinner slice of owners, whose incomes are increasingly stretched by housing costs, who can’t afford a decrease in wages, and who may not be able to afford any increase in interest.

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“Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter.”

Trillions in Debt—but for Now, No Reason to Worry (WSJ)

If current trends persist through the end of the year, U.S. households will owe as much as they did at the peak of borrowing in 2008. Global debt has already topped 2008 levels and keeps rising. That’s pretty astonishing so soon after debt-driven crises in the U.S. and Europe and endless worries about too much borrowing in Japan, China and emerging markets. But for all the hand-wringing, a near-term debt crisis is unlikely. Lower interest rates mean debt payments are far lower than they were before the crisis. In the U.S., household debt compared with the overall economy is way down. And overseas, loans can easily be rolled over. Yet even with low rates, the cycle of borrowing and rolling over loans has a cost. People, governments and businesses spend now instead of later, likely reducing future growth.

The cycle also allows borrowing to go on for years, which can be good—allowing reform to take hold—or not, allowing bad policies to go on almost indefinitely. U.S. households owed $12.25 trillion at the end of the first quarter, up 1.1% from the end of 2015, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, released Tuesday. If the first quarter repeats itself through the end of the year, U.S. household debt will approach its peak of $12.68 trillion, which it hit in the third quarter of 2008. Many people remember that quarter because it’s when the global financial system went off a cliff. This time is different because short-term interest rates have been stuck near zero since then. For U.S. consumers, that means household debt-service payments as a percent of disposable personal income are at their lowest level since at least 1980, despite a much higher debt load. In addition, more loans are going to higher-quality borrowers.

[..] Low rates have had an even more dramatic impact overseas, where economies are weaker or less stable. Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter. But the cost of interest payments, as a share of GDP, has fallen to 7% from a peak of 11%, according to J.P. Morgan. Japan is the prime example of how low interest rates can change the rules of the game. At 400% of GDP, Japan’s debt level is by far the highest in the world. One of the great mysteries of finance is why investors lend the government money for negligible or negative yields when it seems impossible for Japan to pay off its debt.

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“..no one does what’s in Greece’s best interests..”

IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)

A senior IMF official Wednesday said it can’t help Europe with fresh emergency financing for Greece because Athens’s creditors haven’t yet committed to detailed debt relief. The comments show that the agreement touted by European finance ministers last night to release fresh bailout cash for Greece hasn’t nailed down the key elements the IMF says are critical to finally return the debt-laden country to health. Rather, the IMF’s reserved support for the deal has paved the way for Germany to approve new funds and sets the stage for more tough negotiations later this year. “Fundamentally, we need to be assured that the universe of measures that Europe will to commit to…is consistent with what we think is needed to reduce debt,” the senior official told reporters on a conference call. “We do not yet have that.”

But the official said Europe’s acknowledgment that debt relief is needed and would be detailed later this year was enough to win the fund’s conditional backing. “All the stakeholders now recognize that Greek debt is…highly unsustainable,” the official said. “They accept that debt relief is needed, they accept the methodology that is needed to calibrate the necessary debt relief. They accept the objectives of gross financing needs in the near term and in the long run. They even accept the time tables.” Many outside economists see the deal as papering over the differences and once again prolonging the crisis. “Summary of Eurogroup: Germany always wins, IMF caves under pressure from Germany and U.S., no one does what’s in Greece’s best interests,” said Megan Greene at Manulife and John Hancock Asset Management. Marc Chandler at investment bank Brown Brothers Harriman called the deal a “paper charade” that saves Europe more than it does Greece.

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Li wants more debt, Xi at least sees the danger in that.

China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)

It was hardly a headline to set the pulse racing. “Analysing economic trends according to the situation in the first quarter: authoritative insider talks about the state of China’s economy,” read the front page of the Communist party’s official mouthpiece on the morning of Monday 9 May. Yet this headline – and the accompanying 6,000-word article attacking debt-fuelled growth – has sparked weeks of speculation over an alleged political feud at the pinnacle of Chinese politics between the president, Xi Jinping, and the prime minister, Li Keqiang, the supposed steward of the Chinese economy.

“The recent People’s Daily interview not only exposes a deep rift between [Xi and Li], it also shows the power struggle has got so bitter that the president had to resort to the media to push his agenda,” one commentator said in the South China Morning Post. “Clear divisions have emerged within the Chinese leadership,” wrote Nikkei’s Harada Issaku, claiming the two camps were “locking horns” over whether to prioritise economic stability or structural reforms. The 9 May article – penned by an unnamed yet supposedly “authoritative” scribe – warned excessive credit growth could plunge China into financial turmoil, even wiping out the savings of the ordinary citizens.

As if to hammer that point home, a second, even longer article followed 24 hours later – this time a speech by Xi Jinping – in which the president laid out his vision for the Chinese economy and what he called supply-side structural reform. “Taken together, the articles signal that Xi has decided to take the driver’s seat to steer China’s economy at a time when there are intense internal debates among officials over its overall direction,” Wang Xiangwei argued in the South China Morning Post. Like many observers, he described the front page interview as a “repudiation” of Li Keqiang-backed efforts to prop up economic growth by turning on the credit taps.

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“A less aggressive Fed stance is in China’s interest.” Look, the dollar will rise no matter what the Fed does. China must devalue.

Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)

Chinese officials plan to ask their American counterparts in annual talks next month about the chance of a Fed interest-rate increase in June, according to people familiar with the matter. The Chinese delegation will try to deduce whether a June or a July rate rise is more likely, as their nation’s policy makers prepare for the potential impact on financial markets and the yuan, the people said, asking not to be named as the discussions were private. In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said. China’s exchange rate has already been weakening as expectations rise for the U.S. central bank to boost its benchmark rate for the first time since it ended its near-zero policy in December with a quarter%age point increase.

It’s not unusual for senior officials to press each other on their policies, and any inquiries by the Chinese about the Fed would follow repeated expressions of concern from the U.S. about China’s intentions with its exchange rate. The Treasury Department put China on a new currency watch list last month to monitor for unfair trade advantages. “The Chinese side will argue that the U.S. should tread cautiously as it tightens monetary policy and avoid any surprises,” said Mark Williams, chief Asia economist at Capital Economics in London, who participated in U.K.-China meetings when working at Britain’s Treasury. “The Federal Reserve will make its decision solely on what it deems best for the U.S. economy, but it is clear that concerns about China have influenced its thinking about the balance of risks facing the U.S.”

[..] “Chinese officials are pretty anxious about the Fed as a June rate hike – which is not fully discounted in the market – may boost the dollar,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “This could pose a threat or make it difficult for the PBOC to keep a stable RMB exchange rate,” he said, referring to the People’s Bank of China’s management of the renminbi, another term for the yuan. “A less aggressive Fed stance is in China’s interest.”

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Trying to rewrite UK pensions laws just to sell one company. Wow.

Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)

Tata has refused to rule out holding on to its crisis-hit British steel division, raising fears that the business could suffer “a death by a thousand cuts”. Delivering annual results for the Tata’s global steel business, Koushik Chatterjee, executive director, declined to give details on the board’s thoughts on the seven bids the company has received for the loss-making UK plants. But pressed on whether Tata could do a U-turn and hold on to the business – which the Government has said it is willing to take a 25pc stake in and offer financial support to if this will keep it alive – he refused to deny this was an option “I don’t think we have a case as yet,” said Mr Chatterjee. “There is lots of focus only on a sale.” The results announcement – which showed Tata Steel’s revenues down 6pc to £11.9bn and an annual loss of £309m – echoed Mr Chatterjee, saying: “The board… is actively reviewing all options for the Tata Steel UK business, including a potential sale.”

Sajid Javid, the Business Secretary, met with Tata’s directors on Monday night for several hours ahead of their monthly meeting, which considered the bids. It is thought Mr Javid sees Tata keeping the UK business as a way of retaining a viable steel industry in the Britain, after bidders signalled their reluctance to take on the Tata pension scheme, which has a £500m deficit. Ministers are this week expected to start consultations on controversial proposals to restructure the pension scheme [..] The changes would alter the way pension payments are calculated by swapping from RPI inflation to the lower CPI, potentially shaving billions from the scheme’s liabilities. However, such a move would require a change off law and could set what some pensions experts have described as a dangerous precedent.

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Like Britain, like New Zealand, like Canada.

Varoufakis: Australia Lives In A Ponzi Scheme (G.)

Varoufakis’s answers are quick, sharp and eloquent – and ready. He barely needs a pause when asked what he’d do if suddenly installed as Australia’s treasurer, before he’s firing off a prescription for the economy. “The first thing that has to happen in this country is to recognise two truths that are escaping this electorate, and especially the elites. “Firstly, Australia does not have a debt problem. The idea that Australia is on the verge of becoming a new Greece would be touchingly funny if it were not so catastrophic in its ineptitude. Australia does not have a public debt problem, it has a private debt problem. “Truth number two: the Australian social economy is not sustainable as it is. At the moment, if you look at the current account deficit, Australia lives beyond its means – and when I say Australia, I mean upper-middle-class people. The luxurious lifestyle is not supported by the Australian economy.

It’s supported by a bubble, and it is never a good idea to rely on the proposition that a bubble will always be there to support you. “So private debt is the problem. And secondly, because of this private debt, you have a bubble, which is constantly inflated through money coming into this country for speculative purposes.” Varoufakis is unequivocal in his conviction that current growth – which he likens to a Ponzi scheme – needs to be replaced with growth that comes from producing goods. “Australia is switching away from producing stuff. Even good companies like Cochlear, who have been very innovative in the past, have been financialised. They’re moving away from doing stuff to shuffling paper around. That would be my first priority [if I were Australian treasurer]: how to go back to actually doing things.”

Varoufakis wouldn’t be the first to compare the Australian economy to a Ponzi scheme. Economist Lindsay David has made a similar criticism of the housing market, and has also heavily criticised Australia’s reliance on Chinese investment. David and fellow economist Philip Soos have predicted the economy is heading for a crash, and Varoufakis thinks they might be right. He is quick to point out that crashes can never be predicted, but he is in little doubt that it will happen if Australia doesn’t change direction soon. “There is no doubt, if you look at the pace of house prices over the past 20 years in Australia and the pace of value creation; they’re so out of kilter that something has to give.”

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US revenge on Chavez is nearing completion.

Venezuela Sells Gold Reserves As Economy Worsens (FT)

Venezuela’s gold reserves have plunged to their lowest level on record after it sold $1.7 billion of the precious metal in the first quarter of the year to repay debts. The country is grappling with an economic crisis that has left it struggling to feed its population. The OPEC member’s gold reserves have dropped almost a third over the past year and it sold over 40 tonnes in February and March, according to IMF data. Gold now makes up almost 70% of the country’s total reserves, which fell to a low of $12.1 billion last week. Venezuela has larger crude reserves than Saudi Arabia but has been hard hit by years of mismanagement and, more recently, depressed prices for oil. Oil accounts for 95% of its export earnings. Despite the recent price rebound, declining oil output is likely to take a further toll on the economy. The IMF forecasts the economy will shrink 8% this year, and 4.5% in 2017, after a 5.7% contraction in 2015.

Inflation is forecast to exceed 1,642% next year, fueled by printing money to fund a fiscal deficit estimated at about 20% of GDP. Venezuela began selling its gold reserves in March 2015, according to IMF data. At roughly 367 tonnes, Venezuela has the world’s 16th-biggest gold reserves, according to the World Gold Council. In contrast, China and Russia both added to their gold holdings this year, the data show. Gold prices have risen 15% this year. Last year Venezuela’s central bank swapped part of its gold reserves for $1 billion in cash through a complex agreement with Citi. The late president Hugo Chávez had said he would free Venezuela from the “dictatorship of the dollar” and directed the central bank to ditch the US dollar and start amassing gold instead. In 2011, as a safeguard against market instability, Chávez brought most of the gold stored overseas back to Caracas.

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What an incredible charade this has turned into.

Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)

The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged. A total of 47 bank employees were charged in relation to the cases. One was a boardroom-level executive, the Journal’s analysis found. The analysis shows not only the rarity of proceedings brought against individual bank employees, but also the difficulty authorities have had winning cases they do bring. Most of the bankers who were charged pleaded guilty to criminal counts or agreed to settle a civil case, with those facing civil charges paying a median penalty of $61,000.

Of the 11 people who went to trial or a hearing and had a ruling on their case, six were found not liable or had the case dismissed. That left a total of five bank employees at any level against whom the government won a contested case. They include Mr. Heinz, the former UBS employee. One of the few successful government cases was overturned Monday. A federal appeals court tossed civil mortgage-fraud charges and a $1 million penalty against Rebecca Mairone, a former executive at Countrywide Financial Corp., now part of Bank of America Corp. The court also threw out a related $1.27 billion penalty against Bank of America. Representatives of Ms. Mairone and the bank this week welcomed the verdict, while the Justice Department, which brought the cases, declined to comment.

There are plenty of possible explanations for the small number of successful cases. For starters, much of the institutional conduct during and after the financial crisis didn’t break the law, said law-enforcement officials. Even when the government has been able to prove illegal activity, it has rarely been traced to the upper echelons of big banks. “The typical scenario is not that the bank has this plan for world domination being cooked up by the chairman and CEO,” said Adam Pritchard, a law professor at the University of Michigan. “It’s some midlevel employee trying to keep his job or his bonus, and as result the bank gets into trouble.”

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“The Fed might want to imitate the ECB but may be restricted from doing so by its charter..” “We wouldn’t discount the possibility it will try to amend, or get around, any prohibitions, however.”

Quantitative Easing and the Corruption of Corporate America (DMB)

[..] corporate leverage is hovering near a 12-year high and domestic capital expenditures have plunged. In the interim, reams of commentary have been devoted to share buybacks and with good reason. Companies reducing their share count have, at least in recent years, been where the hottest action is, courtyard-seat level action. But now, it looks as if the trend is finally cresting. A fresh report by TrimTabs found that companies have announced 35% less in buybacks through May 19th compared with the same period last year. And while $261.5 billion is still respectable (for the purpose of placating shareholders), it is nevertheless a steep decline from 2015’s $399.4 billion. Even this tempered number is deceiving – only half the number of firms have announced buybacks vs last year.

Have U.S. executives and their Boards of Directors finally found religion? We can only hope. The devastation wrought by the multi-trillion-dollar buyback frenzy is what many of us learned in Econ 101 as the ‘opportunity cost,’ or the value of what’s been foregone. As yet, the value of lost investment opportunities remains a huge unknown. In the event doing right by future generations does not suffice, executives might be motivated to renounce their errant ways because shareholders appear to have stopped rewarding buybacks. According to Marketwatch, an exchange traded fund that affords investors access to the most aggressive companies in the buyback arena is off 0.8% for the year and down 9.8% over the last 12 months.

The hope is that Corporate America is at the precipice of an investment binge that sparks economic activity that richly rewards those with patience over those with the burning need for instant gratification. The risk? That central bankers whisper sweet nothings the likes of which no Board or CFO can resist. Mario Draghi may already have done so. In announcing its latest iteration of QE, the ECB added investment grade corporate bonds to the list of eligible securities that can satisfy its purchase commitment. Critically, U.S. multinationals with European operations are included among qualifying issuers. As Evergreen Gavekal’s David Hay recently pointed out, McDonald’s has jumped right into the pool, issuing five-year Euro-denominated paper at an interest rate of a barely discernible 0.45%.

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Yeah, like it was ever gone.

Brexit, And The Return Of Political Lying (Oborne)

During the run-up to the Iraq invasion, intelligence officers would hand ministers an estimate, an allegation, a straw in the wind, in certain cases (the 45-minute claim being the most notorious example) an outright fabrication. Tony Blair’s office would then bless it with the imprimatur of a government assessment, usually employing vague wording — in the hope that the media would repeat and then amplify the message. Cameron and Osborne have become masters of this kind of politics. ‘We’re paying down Britain’s debts,’ said David Cameron in 2013. This was a straight lie: the national debt was soaring as he spoke. ‘When I became Chancellor,’ observed Osborne last year, ‘debt was piling up.’ True – and he has been piling it up ever since, even now rising by £135 million a day.

This kind of deception works: polls show that only a minority of voters realise that the national debt is still rising. George Osborne has now converted the Treasury into a partisan tool to sell the referendum, exactly as Tony Blair used the Joint Intelligence Committee to make the case for war against Iraq. Before becoming Chancellor, Osborne was critical of Gordon Brown’s Treasury, and rightly so, because it had been so heavily politicised. He rightly stripped the Treasury of its forecasting function and created an independent Office for Budget Responsibility — an encouraging sign that he was determined to avoid the culture of deceit which was such a notable feature of the Brown/Blair era. It is therefore very troubling that the Office for Budget Responsibility has not come anywhere near the two Treasury dossiers that make the case for the EU.

It’s easy to see why – they would point out straight away that the Chancellor has been engaged in fabrication. For example, let’s take a hard look at how he induced Treasury officials to endorse his central claim that families would be £4,300 ‘worse off’ if Britain left the EU. The main technique that Osborne used was his conflating GDP with household income – and referring to ‘GDP per household’, a phrase that has never been used in any Budget. As the Chancellor used to argue, GDP is a misleading indicator which can be artificially inflated by immigration. Immigration of 5% may well raise GDP by the same amount, but nobody would be any better off. ‘GDP per capita is a much better indicator,’ said Osborne when newly in office. He made no mention at all of GDP per capita when launching the Brexit documents published by the Treasury.

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“We have entered the looting stage of capitalism. Desolation will be the result.” Paul Craig Roberts doesn’t hold back.

We Have Entered The Looting Stage Of Capitalism (PCR)

Having successfully used the EU to conquer the Greek people by turning the Greek “leftwing” government into a pawn of Germany’s banks, Germany now finds the IMF in the way of its plan to loot Greece into oblivion . The IMF’s rules prevent the organization from lending to countries that cannot repay the loan. The IMF has concluded on the basis of facts and analysis that Greece cannot repay. Therefore, the IMF is unwilling to lend Greece the money with which to repay the private banks. The IMF says that Greece’s creditors, many of whom are not creditors but simply bought up Greek debt at a cheap price in hopes of profiting, must write off some of the Greek debt in order to lower the debt to an amount that the Greek economy can service.

The banks don’t want Greece to be able to service its debt, because the banks intend to use Greece’s inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism—a few robber barons and many serfs: the 1% and the 99%. The way Germany sees it, the IMF is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF. As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principallly the banks themselves or their major clients.

So far the so-called “creditors” have only pledged to some form of debt relief, not yet decided, beginning in 2 years. By then the younger part of the Greek population will have emigrated and will have been replaced by immigrants fleeing Washington’s Middle Eastern and African wars who will have loaded up Greece’s unfunded welfare system. In other words, Greece is being destroyed by the EU that it so foolishly joined and trusted. The same thing is happening to Portugal and is also underway in Spain and Italy. The looting has already devoured Ireland and Latvia (and a number of Latin American countries) and is underway in Ukraine. The current newspaper headlines reporting an agreement being reached between the IMF and Germany about writing down the Greek debt to a level that could be serviced are false. No “creditor” has yet agreed to write off one cent of the debt.

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Euro Cup starts in a few weeks, but “The French government said it was prepared to endure weeks of strikes at refineries..” Oh, sure.

France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)

The French government said it was prepared to endure weeks of strikes at refineries and began releasing strategic oil reserves to help ease nationwide fuel shortages. While panic-buying by motorists drove demand to three times the normal level Tuesday, France has enough stocks even if the strikes persist for weeks, Transport Minister Alain Vidalies said. The problem isn’t about supply but about delivery, he said. Oil companies have mobilized hundreds of trucks to ship diesel and gasoline around the country since the start of the week as filling stations ran dry after all the nation’s refineries experienced disruptions or outright shutdowns. By Wednesday Exxon Mobil reported that its Gravenchon plant was operating normally and able to transport fuel while elsewhere strikers have blocked refineries to try to bring shipments to a halt.

Workers are protesting against President Francois Hollande’s plans to change labor laws to reduce overtime pay and make it easier to fire staff in some cases. While the government has watered down its proposals since first floating them in February, unions are calling for them to be scrapped altogether. The new law will not be withdrawn and police will continue to ensure access to fuel depots, Prime Minister Manuel Valls told Parliament Wednesday. Total’s Feyzin refinery near Lyon and its Normandy plant have stopped production. La Mede was working at a lower rate Wednesday, while the facilities at Grandpuits near Paris and Donges close to Nantes will come to a complete halt later this week, according to a company statement.

Total may reconsider a plan to spend €500 million to upgrade the Donges facility as workers take the plant “hostage,” CEO Patrick Pouyanne said Tuesday. He urged motorists not to rush to gas stations and create an “artificial” shortage. Some 348 of Total’s 2,200 gas stations ran out of fuel and 452 faced partial shortages as of Wednesday morning, the company said. The figures are little changed from Tuesday. About one in five of the country’s 12,200 stations were facing shortages Tuesday afternoon, the government said.

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All Marine Le Pen has to do is to sit back and watch.

Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)

As smoke rises from burning tyres on French oil refinery picket-lines, motorists queue for miles to panic-buy rationed petrol, and train drivers and nuclear staff prepare to go on strike. With the 2017 French presidential election nearing, the Socialist president François Hollande is facing his toughest and most explosive crisis yet. It is not just Hollande’s political survival at stake, though, but the image of France itself. The country is preparing to host two million visitors at the showpiece Euro 2016 football tournament in two weeks, and the back-drop is not ideal: strikes and feared fuel shortages, potential transport paralysis, a terrorist threat, a state of emergency and a mood of heightened tension and violence between street protesters and police.

Hollande, the least popular leader in modern French history whose approval ratings are festering, according to various polls, at between 13% and 20%, might not seem as though he has further to fall. But in fact he is clinging, white-knuckled, to the edge of a cliff. The Socialist was supposed to be spending May and June testing the waters for a possible re-election bid by repeating his new mantra “things are getting better” – even if more than 70% of French people don’t believe that that is true. Instead, France has been hit by an explosive trade union revolt over Hollande’s contested labour reforms. The beleaguered president has framed these reforms as a crucial loosening of France’s famously rigid labour protections, cutting red-tape and slightly tweaking some of the more cumbersome rules that deter employers from hiring.

This would, he has argued, make France more competitive and tackle stubborn mass employment that tops 10% of the workforce. But after more than two months of street demonstrations against the labour changes, the hardline leftist CGT union radically upped its strategy and is now trying to choke-off the nation’s fuel supply to force Hollande to abandon the reforms.

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Win win win squared. That’s why you feel so happy right now; look in the mirror. You get to finance a winning proposition!

Bayer Could Get ECB Financing For Monsanto Bid (R.)

Bayer could receive financing from the European Central Bank that would help to fund a takeover of Monsanto, according to the terms of the ECB’s bond-buying program. U.S.-based Monsanto, the world’s largest seed company, turned down Bayer’s $62 billion bid on Tuesday, but said it was open to further negotiations. The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements. The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity. “It will be interesting to observe how much of such a deal would be absorbed by the central bank,” credit analysts at UniCredit wrote in a note. The ECB is buying €80 billion worth of assets every month in an effort to revive economic growth in the euro zone by lowering borrowing costs. Central bank sources told Reuters that it would not be the ECB’s first choice if the money it spent ended up financing acquisitions. But even this would have a silver lining if consolidation made an industry or sector more efficient and if it gave fresh impetus to the stock market, the source added. And if issuers ended up exchanging the euros raised through bond sales for dollars, that would also help the euro zone by weakening the euro against the greenback, the sources said.

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“Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost..”

Putin Closes The Door To Monsanto (DDP)

Russia’s Vladimir Putin is taking a bold step against biotech giant Monsanto and genetically modified seeds at large. In a new address to the Russian Parliament Thursday, Putin proudly outlined his plan to make Russia the world’s ‘leading exporter’ of non-GMO foods that are based on ‘ecologically clean’ production. Perhaps even more importantly, Putin also went on to harshly criticize food production in the United States, declaring that Western food producers are no longer offering high quality, healthy, and ecologically clean food. “We are not only able to feed ourselves taking into account our lands, water resources – Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost, especially given the fact that demand for such products in the world market is steadily growing,” Putin said in his address to the Russian Parliament.

And this announcement comes just months after the Kremlin decided to put a stop to the production of GMO-containing foods, which was seen as a huge step forward in the international fight to fight back against companies like Monsanto. Using the decision as a launch platform, it’s clear that Russia is now positioning itself as a dominant force in the realm of organic farming. It even seems that Putin may use the country’s affinity for organic and sustainable farming as a centerpiece in his economic strategy. “Ten years ago, we imported almost half of the food from abroad, and were dependent on imports. Now Russia is among the exporters. Last year, Russian exports of agricultural products amounted to almost $20 billion – a quarter more than the revenue from the sale of arms, or one-third the revenue coming from gas exports,” he added.

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May 122016
 
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DPC Betsy Ross house, Philadelphia. Birthplace of Old Glory 1900

The Next US President Will Face A Recession (BBG)
America’s Middle Class Meltdown (FT)
‘Fed Doesn’t Get It About Global Excess Supply’ (MW)
The New Kings Of Wall Street (Forbes)
Italy Must Choose Between The Euro And Its Own Economic Survival (AEP)
Hong Kong Property Market in Free Fall: Kyle Bass (BBG)
China Eyes $724 Billion Of Transport Investment Over Next Three Years (R.)
Defying Debt Fears, China Bets On Infrastructure, Property (R.)
Budweiser’s ‘America’ No Longer Exists (MW)
US Anti-Poverty Campaigner Is Worried About Australia (DL)
Berlin Should Be Careful What It Wishes For (FT)
EU Parliament Raises the Rhetoric Over Turkey’s Visa-Waiver Bid (BBG)
European Rights Watchdog Complains About Greek Refugee Camps Conditions (R.)

Look what the Fed bought you! “The 83-month-old expansion is already the fourth-longest in more than 150 years..”

The Next US President Will Face A Recession (BBG)

Talk about a poisoned chalice. No matter who is elected to the White House in November, the next president will probably face a recession. The 83-month-old expansion is already the fourth-longest in more than 150 years and starting to show some signs of aging as corporate profits peak and wage pressures build. It also remains vulnerable to a shock because growth has been so feeble, averaging just about 2% since the last downturn ended in June 2009. “If the next president is not going to have a recession, it will be a U.S. record,” said Gad Levanon, chief economist for North America at the Conference Board in New York. “The longest expansion we ever had was 10 years,” beginning in 1991.

The history of cyclical fluctuations suggests that the “odds are significantly better than 50-50 that we will have a recession within the next three years,” according to former Treasury Secretary Lawrence Summers. Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York, puts the probability of a downturn during that time frame at about two in three. The U.S. doesn’t look all that well-equipped to handle a contraction should one occur during the next president’s term, former Federal Reserve Vice Chairman Alan Blinder said. Monetary policy is stretched near its limit while fiscal policy is hamstrung by ideological battles.

This wouldn’t be the first time that a new president was forced to tackle a contraction in GDP. The nation was in the midst of its deepest slump since the Great Depression when Barack Obama took office on January 20, 2009. His predecessor, George W. Bush, started his tenure as president in 2001 with the economy about to be mired in a downturn as well, albeit a much milder one than greeted Obama. The biggest near-term threat comes from abroad. Former IMF official Desmond Lachman said a June 23 vote by the U.K. to leave the European Union, a steeper-than-anticipated Chinese slowdown and a renewed recession in Japan are among potential developments that could upend financial markets and the global economy in the coming months. “There’s a non-negligible risk that by the time the next president takes office in January you would have the world in a pretty bad place,” said Lachman, who put the odds of that happening at 30% to 40%.

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A strange combo of how great Raleigh is and how decrepit at the same time. ‘Remarkable success story’ blah blah. The FT blows up America’s economic myths, but it does so reluctantly.

America’s Middle Class Meltdown (FT)

The erosion of America’s middle class and the resulting voter frustration that has helped fuel the presidential campaigns of Republican Donald Trump and Bernie Sanders, the populist Democratic senator from Vermont, is often portrayed as a phenomenon brought about by the collapse of well-paying manufacturing jobs over the past three decades thanks to increased automation and competition from China. But a new study by the non-partisan Pew Research Center, shared with the Financial Times, points to just how widespread the damage to America’s middle has been and how divided the country’s class structures are becoming. Median incomes fell in four-fifths of the 229 metropolitan areas studied by Pew, with the share of middle-income adults decreasing in 203 areas.

At the same time the portion of lower-income adults rose in 160 metropolitan areas between 1999 and 2014 while the share of upper-income households rose in 172. Of the metropolitan areas analysed by Pew, none saw faster population growth this century than Raleigh. Together with neighbouring Durham and the Research Triangle Park, it is celebrated as an example of how cities can transform themselves into sparky science and technology-driven hubs of innovation, or key outposts for America’s new “knowledge economy”. “It is one of the most remarkable success stories of the last 20 years, or even 30 years,” says Enrico Moretti, a University of California, Berkeley, economist and author of The New Geography of Jobs.

[..] But while Raleigh’s population continues to grow, the new data from Pew shows that the robust population growth has not necessarily translated into higher incomes for its new residents. The benefits of the boom have been shared unequally. The inflation-adjusted annual median income for a household of three in Raleigh fell by more than $10,000 to $74,283 in 2014 from $85,784 in 1999, even as its population grew by two-thirds to more than 1.3m people from just under 800,000. More surprisingly, the only income group to grow as a share of the population was its poorest. In 1999 one in five residents of the metropolitan area lived in households making two-thirds or less of the median income. By 2014 that figure had grown to one in four.

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“..the Forecaster of the Month contest for April..”? Geez, that’s for real? But the point made is relevant, even if I’m not convinced the Fed ‘doesn’t get it’.

‘Fed Doesn’t Get It About Global Excess Supply’ (MW)

The Federal Reserve is blowing it because it thinks the economy could be overheating, but the real problem is excess supply and deflationary pressure, says Steven Ricchiuto, chief economist for Mizuho Securities USA and the winner of the Forecaster of the Month contest for April. “The dynamics of supply and demand have shifted,” Ricchiuto said in an interview. “I don’t think they get it yet,” he said of the Fed. The central bank is trying to manage the economy as if excess demand were still the major problem it was in the 1970s and 1980s. But today’s global economy suffers from a different imbalance, Ricchiuto says: Excess supply. When excess demand is the normal state of the economy, then inflation is the perennial problem.

But if the economy is stuck in a rut of excess supply, then slow growth and deflation will persist. “We should be immunizing the nation against deflation,” Ricchiuto said. But, instead, the Fed still seems to be living in the 1970s, worried that the unemployment rate will go too low and that the economy will overheat. That’s why the Fed “blew it in December” when it raised interest rates. The myopic focus on unemployment is misguided, in Ricchiuto’s view. Almost all of the economic data on the production side of the economy (such as industrial output, business sales and gross domestic product) show a tepid economy. But the labor market is doing great, comparatively. The Fed reacts to the strong job news, but ignores the rest of the story. If the Fed cared about the supply side of the economy, it would see that idle resources are pulling the economy toward stagnation and deflation.

Of course, excess supply is a global problem, not just in the U.S. Other economies are trying to reduce their excess supply the quickest way they can: Devaluing their currency in hopes that they can push the problem of excess capacity onto the country with the strongest currency. These beggar-thy-neighbor policies don’t really solve the problem, at least not quickly. Everybody around the world needs to figure out how to increase domestic demand to bring supply and demand back into balance, he said. Although the Fed doesn’t get it, many voters do, and so do candidates like Bernie Sanders, Ricchiuto said. “People are recognizing deep, fundamental flaws” in the economy. They are clamoring for policies such as more spending on infrastructure, measures to reduce the concentration of wealth, and tax reform.

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In a nutshell: Banks are regulated. Blackstone is not.

The New Kings Of Wall Street (Forbes)

In March 2015 Stephen Schwarzman got a telephone call from JPMorgan vice chairman Jimmy Lee, one of Wall Street’s legendary power brokers. Lee, who died three months later, was helping General Electric unload $30 billion in commercial real estate assets lingering on its books. GE boss Jeffrey Immelt was uncomfortable with the massive financial services business his predecessor, Jack Welch, had slowly built up. During the 2008 meltdown, frozen credit markets put GE Capital’s $101 billion in commercial paper funding in peril, bringing the mighty industrial conglomerate to its knees. Lee told Schwarzman that the real estate sale was the keystone to Immelt’s reinvention plan for the 123-year-old company.

The hang-up: finding a single buyer for a portfolio that included financing for everything from Mexican warehouses to Parisian office buildings to commercial mortgages in Australia. The billions in real estate and commercial mortgages were scattered across six countries, comprising all sorts of risks. Lee, Immelt and GE Capital boss Keith Sherin knew that Blackstone Group was the only firm with three key traits: the global reach to understand all the different assets, the resources to close a deal quickly and the financial firepower to swallow the entire package. The first call went to Blackstone’s global real estate chief, Jonathan Gray, who quickly darted over to GE’s 30 Rockefeller Center offices in Manhattan.

There Sherin offered Blackstone an exclusive look for three weeks–a minuscule period of time given the scope of the assets, but also a huge opportunity. Gray agreed, and before even getting off the elevator, he was marshaling an army of 100 Blackstone real estate professionals to tear through GE Capital’s portfolio. Four weeks later, on Apr. 10, Immelt announced that Blackstone would purchase $14 billion of GE’s assets, with Wells Fargo WFC -0.65% taking $9 billion of GE’s commercial real estate mortgages. For Immelt, Blackstone was a savior. GE’s languishing stock jumped 11% on the news. It was an even better transaction for Blackstone. The private equity firm had the inside track and thus more control over the deal terms and price, which was ultimately discounted.

“It was a perfect deal for us,” Schwarzman says. “No one else in the world is set up to buy both equity assets and real estate debt on a global basis.” Indeed, Blackstone’s massive 2015 purchase, executed flawlessly, announced to the world that the bankers at JPMorgan and Goldman Sachs–who had been the premier financiers for many decades–were no longer the kings of Wall Street. There was a new pecking order that put private equity firms on top–with Blackstone at the apex and its chairman and chief executive, Schwarzman, as the most powerful banker on the planet.

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All that’s missing is a spark to start the fire.

Italy Must Choose Between The Euro And Its Own Economic Survival (AEP)

Italy is running out of economic time. Seven years into an ageing global expansion, the country is still stuck in debt-deflation and still grappling with a banking crisis that it cannot combat within the paralyzing constraints of monetary union. “We have lost nine %age points of GDP since the peak of the crisis, and a quarter of our industrial production,” says Ignazio Visco, the rueful governor of the Banca d’Italia. Each year Rome hopefully pencils in a fall in the ratio of public debt to GDP, and each year the ratio rises. The reason is always the same. Deflationary conditions prevent nominal GDP rising fast enough to outgrow the debt. The putative savings from drastic fiscal austerity – cuts in public investment – were overwhelmed by the crushing arithmetic of the ‘denominator effect’. Debt was 121pc in 2011, 123pc in 2012, 129pc in 2013.

It came close to levelling out last year at 132.7pc, helped by the tailwinds of a cheap euro, cheap oil, and Mario Draghi’s fairy dust of quantitative easing. This triple stimulus is already fading before the country escapes the stagnation trap. The IMF expects growth of just 1pc this year. The global window is closing in any case. US wage growth will probably force the Federal Reserve to raise interest rates and wild speculation will certainly force China to rein in its latest credit boom. Italy will enter the next downturn – perhaps early next year – with every macro-economic indicator in worse shape than in 2008, and half the country already near political revolt. “Italy is enormously vulnerable. It has gone through a whole global recovery with no growth,” said Simon Tilford from the Centre for European Reform.

“Core inflation is at dangerously low levels. The government has almost no policy ammunition to fight recession.” Italy needs root-and-branch reform but that is by nature contractionary in the short-run. It is viable only with a blast of investment to cushion the shock, says Mr Tilford, but no such New Deal is on the horizon. Legally, the EU Fiscal Compact obliges Italy to do the exact opposite: to run budget surpluses large enough to cut its debt ratio by 3.6pc of GDP every year for twenty years. Do you laugh or cry? “There is a very real risk that Matteo Renzi will come to the conclusion that his only way to hold on to power is to go into the next election on an openly anti-euro platform. People are being very complacent about the political risks,” said Mr Tilford. Indeed. The latest Ipsos MORI survey shows that 48pc of Italians would vote to leave the EU as well as the euro if given a chance.

The rebel Five Star movement of comedian Beppe Grillo has not faded away, and Mr Grillo is still calling for debt default and a restoration of the Italian lira to break out of the German mercantilist grip (as he sees it). His party leads the national polls at 28pc, and looks poised to take Rome in municipal elections next month. The rising star on the Italian Right, the Northern League’s Matteo Salvini, told me at a forum in Pescara that the euro was “a crime against humanity” – no less – which gives you some idea of where this political debate is going. The official unemployment rate is 11.4pc. That is deceptively low. The European Commission says a further 12pc have dropped out of the data, three times the average EU for discouraged workers.


Italy’s industrial output has fallen back to the levels of the 1980s. It has been catastrophic Credit: St Louis Fed

The youth jobless rate is 65pc in Calabria, 56pc in Sicily, and 53pc in Campania, despite an exodus of 100,000 a year from the Mezzogiorno – often in the direction of London. The research institute SVIMEZ says the birth rate in these former Bourbon territories is the lowest since 1862, when the Kingdom of the Two Sicilies in Naples began collecting data. Pauperisation is roughly comparable to that in Greece. Industrial output has dropped by 35pc since 2008, and investment by 59pc. SVIMEZ warns that the downward spiral is turning a cyclical crisis into a “permanent state of underdevelopment”. In short, southern Italy is close to social collapse, and there is precious little that premier Renzi can do about it without reclaiming Italian economic sovereignty.

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“The Chinese credit system, according to Bass, is “one of the biggest macro imbalances the world has ever seen”..”

Hong Kong Property Market in Free Fall: Kyle Bass (BBG)

Kyle Bass, the hedge-fund manager who’s wagering on a slowdown in China’s economy, said Hong Kong’s property market is in “free fall” and the credit expansion in Southeast Asian emerging markets will unravel. “Hong Kong’s in a worse position than it was in prior to the ’97 crisis today,” Bass said at the SkyBridge Alternatives Conference in Las Vegas on Wednesday. He said credit in Asian emerging markets has grown “recklessly,” citing Malaysia and Thailand. Hong Kong property prices have declined and sales are hovering near a 25-year low as the city grapples with the repercussions of a slowing Chinese economy. Home prices have dropped about 13% from a peak in September, according to data compiled by Centaline Property Agency.

The last major housing crash in the former British colony saw prices tumble almost 50% in the 12 months from October 1997. They eventually bottomed in mid-2003 when the city was swept up by the severe acute respiratory syndrome epidemic and have almost quadrupled since then. Bass, famed for betting against U.S. subprime mortgages prior to the housing crash, is predicting losses for China’s banks and raising money to start a dedicated fund for bets in the nation. He said last week at a conference that investors putting money in Asia should ask themselves if they can handle 30% to 40% writedowns in Chinese investments.

“China may be able to not tell the truth about specific output levels, or GDP figures – they might be able to fudge those numbers for a while,” Bass said at a panel discussion, moderated by Bloomberg TV’s Erik Schatzker. “But their trading partners kind of tell the truth, and you’re already seeing what’s happening in their primary trading partners.” The Chinese credit system, according to Bass, is “one of the biggest macro imbalances the world has ever seen.” The fund manager said China is already experiencing a “hard landing as we speak.” He said he isn’t a “permanent bear” on China, instead describing himself as a pragmatist.

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In lieu of welfare?! BTW, where will they borrow the money?

China Eyes $724 Billion Of Transport Investment Over Next Three Years (R.)

China will invest around 4.7 trillion yuan ($724 billion) in transport infrastructure projects over the next three years, the country’s transport ministry said in an article posted on its website late on Wednesday. The 2016-2018 plan from China’s Ministry of Transport and National Development and Reform Commission (NDRC) will see the country push forward 303 key transportation projects including railways, highways, waterways, airports and urban rail, it said. The investment splurge underlines China’s reliance on high-levels of public sector spending, credited by economists as being behind recent signs of improvement in the country’s economy, but also as creating a risk as debt levels rise.

The article, posted on the Ministry of Transport’s website, said the investment plan would improve the country’s high-speed transport networks and inter-city links to meet the demands of China’s wider economic and social development. China’s first quarter investment in infrastructure surged almost 20%, as the government looks to transport-related sectors to help support wider economic growth. The official Xinhua news agency reported earlier this month that China will invest around $12 billion this year in building aviation infrastructure.

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And yes, this is where they’ll borrow, and that means shadow banks: “..Beijing has given local governments its blessings to raise funds in the bond market, much of it through local government financing vehicles (LGFVs) that skirt official spending limits..”

Defying Debt Fears, China Bets On Infrastructure, Property (R.)

Local governments across China are binging on debt again to pump-prime their slack economies. But this time round, they are not wasting money propping up zombie factories or loss-making steel plants. Investment in industries hit by chronic overcapacity is drying up quickly. Investment in mining tumbled 18% in the first quarter from a year earlier, the most since at least the second quarter of 2004, while investment in manufacturing grew just 6%, the slowest in the same period, according to the latest data from the National Bureau of Statistics. In recent years, miners and manufacturers had tapped easy-to-access bank credit and government subsidies to fire up production even as demand began to wilt.

In a landmark move, Beijing has ordered the closure of debt-ridden zombie firms as its policy priority for 2016. In contrast, first-quarter investment in infrastructure and real estate surged 19.6% and 6.2%, respectively. The numbers reflect the government’s strategy of re-allocating capital to other engines of the economy, and in turn, providing a little respite to the steel, cement, energy and related services sectors. China will invest $11.9 billion in aviation infrastructure this year alone. It has also approved a 27.4 billion yuan high-speed rail project linking Beijing’s new airport with neighboring Hebei province. In real estate, China’s March home prices rose at the fastest clip in almost two years on the back of a boom in top-tier cities amid easy bank credit.

To boost infrastructure investment, Beijing has given local governments its blessings to raise funds in the bond market, much of it through local government financing vehicles (LGFVs) that skirt official spending limits. LGFVs have raised tens of billions of dollars through bonds in the first quarter, according to brokerage estimates, even as China skeptics warn of another debt bust. The AA-rated LGFV issuances have appealed to investors increasingly unsure of the quality of corporate paper. Overall local government bond issuances in the quarter totaled 955.4 billion yuan, according to investment firm China International Capital. Investment in infrastructure and real estate is more organized and demand-based this time, and will have a better chance of success than more speculative developments in the past, some economists say. But that’s a subject for debate.

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Fun with beer. The kind of stuff to bore your guests with while serving them ‘America’.

Budweiser’s ‘America’ No Longer Exists (MW)

Oh, Budweiser is American all right — just not in the way its cans want you to think it is. Earlier this week, the folks behind Anheuser-Busch InBev’s Budweiser brand announced their intention to relabel Budweiser as “America” from late May through the November presidential election. They’re going to sub in “US” for “AB” in the logo, switch out “King of Beers” for “E Pluribus Unum” and include the entire first stanza of “The Star-Spangled Banner” on the head of the label. Now, you could write this off by saying that A-B takes some sort of patriotic measure with Budweiser cans every year, and you’d be right, but this particular rebrand says more about Budweiser’s American tale than it likely wants to admit. For starters, “Budweiser” traces its origins back to the South Bohemia region of what is now the Czech Republic.

The city of Ceske Budejovice has been brewing beer since the 1400s, and its German-speaking residents — who called it “Budweis” — began brewing Budweiser Bürgerbräu in 1795. They began shipping that beer to the U.S. in 1875, or about a year before a German immigrant named Adolphus Busch made a trip to Bohemia and decided to name his own U.S. beer Budweiser in tribute to the Bohemian brand. Though Anheuser-Busch InBev now owns that brand, another Czech brewery — state-owned Budejovicky Budvar , founded in 1895 — has laid claim to the Budweiser name, saying it is indicative of the city where it was first made. While A-B InBev can call its beer Budweiser in North America, the United Kingdom and much of the rest of the world, Budvar has the rights to the Budweiser name in much of Europe and forces Anheuser-Busch InBev to name its version “Bud.”

When challenged in court, Budvar simply reminds folks of what Adolphus Busch himself testified in a New York courthouse in 1896: “The Budweiser beer is brewed according to the Budweiser Bohemian process. The idea was simply to brew a beer similar in quality, color, flavor and taste to the beer then made at Budweis, or in Bohemia.” If the loss of its identity in Europe didn’t sever Budweiser’s ties to the Old World, the sale of Anheuser-Busch to InBev for $52 billion back in 2008 certainly did. Not only had A-B been taken over by a company with headquarters in Belgium and Brazil — enabling it to engage in the grand American tradition of tax inversion — but cost-cutting measures reduced U.S. jobs, removed German Hallertauer Mittelfrüh hops from the equation and put pressure on suppliers of everything from rice grains to the beechwood used in “beechwood-aged” Budweiser’s touted brewing process.

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“You’re gonna lift the tax-free threshold for rich people. If you lift my tax-free threshold, that changes my life. That means that I get to say to my little girls, ‘Daddy’s not broke this weekend, we can go to the pictures.’ Rich people don’t even notice their tax-free threshold lift.”

US Anti-Poverty Campaigner Is Worried About Australia (DL)

Linda Tirado is in the green room of the ABC on Monday night during the broadcast of Q&A and she is getting madder and madder; and it’s not just from hearing #IStandWithDuncan Duncan Storrar be real in the audience that evening. Tirado, a US anti-poverty campaigner (a job we should all do), is overwhelmed by what Storrar, the 45 year-old Geelong father of two and part-time truck driver had to say about the federal government’s planned tax cuts. “You’re gonna lift the tax-free threshold for rich people. Why don’t I get it? Why do they get it?” he asked assistant treasurer Kelly O’Dwyer.

“I’ve got a disability and a low education – that means I’ve spent my whole life working off a minimum wage. You’re gonna lift the tax-free threshold for rich people. If you lift my tax-free threshold, that changes my life. That means that I get to say to my little girls, ‘Daddy’s not broke this weekend, we can go to the pictures.’ Rich people don’t even notice their tax-free threshold lift.” So, Duncan Storrar is talking, Kelly O’Dwyer is responding and Tirado is sitting in the green room, furious. She’s wondering exactly what’s been happening to Australia over the last 12 months. “Obviously I cannot tell you what a hero he is and what a sacrifice he made. To say something like that in public, to say you don’t make enough to make ends meet, that is incredibly brave.”

But she fears the change she has seen in the Australian political landscape since she was last here. She’s here as part of the Anti-Poverty Network’s conference but is keen to stay a little longer and cover the Australian election from the eyes of a survivor of the US class war. [..] “In America, we have this idea of meritocracy. If you deserve it, you will have it. If you don’t have it, it is because you don’t deserve it and the fact remains 45 million Americans are living in poverty, most of those people are in work. They’re holding down multiple jobs and we call them lazy. By definition anybody who works three jobs is not lazy and if you think so I dare you to get out of your air conditioned office and try it for yourself.”

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“..a disease whose main cause is now Germany’s own current account surplus.”

Berlin Should Be Careful What It Wishes For (FT)

Greece’s parliament this week approved reforms to the country’s creaking pensions and tax system by a larger margin than had been anticipated. But significant differences remain, notably on how large a primary budget surplus should be targeted over the next few years, and above all on the question of debt relief. The disagreement between the IMF and European governments on the latter point has come into the open. On this, the IMF is right and those Europeans who oppose relief are wrong: there can be no solution to the Greek crisis without it. Germany, driven by Wolfgang Schäuble, its finance minister, remains doggedly opposed, but even within the German government, open opposition to Mr Schäuble’s hard line has come recently from Sigmar Gabriel, economics minister.

Chancellor Angela Merkel may be tempted to ignore Mr Gabriel, whose Social Democratic party is polling poorly and whose own future as its leader is in question. German public opinion sees relief as a favour the Greeks have done little or nothing to deserve, and asks whether it will stop with Greece. The issue is not a winning one for a chancellor already under siege. Nevertheless, she would be wise to recognise the stakes for Europe as a whole. Berlin’s tenacious enforcement of austerity across the eurozone mistakes a symptom — the continued difficulties of countries like Greece — for a disease whose main cause is now Germany’s own current account surplus. The Germans have been able to persist in this illusion because without the low interest rates that Germany’s affluent voters now complain about it is doubtful whether the eurozone would have weathered the last six years at all.

Mr Schäuble might believe that the eurozone is safe come what may, even if his hard line leads to Grexit, but saving the euro will count for little if the cost is massive damage to the EU itself. Is this putting it too strongly? Perhaps it was two or three years ago but things have moved on since then. The refugee crisis has mushroomed and openly authoritarian Eurosceptic parties have profited and threaten some of the EU’s core values and principles. Euclid Tsakalotos, the Greek finance minister, warned his European counterparts recently of turning the country into a “failed state”. Even though some of his frustrated partners might think it already is, he is right: things could get much worse. It is not just about the refugee crisis although that is one factor.

There is a good deal of wishful thinking right now on this in much of central and eastern Europe. The Greeks, who despite their own deep difficulties are actually doing a great deal to help the refugees, know better: the neo-Habsburg military frontier going up across south-eastern Europe to keep out refugees will not work. There is no good alternative to helping the Greeks in the massive task that confronts them. Then there is the question of the Balkans as a whole. In Bosnia the Dayton peace settlement did one thing: it stopped the fighting. But two decades on, Bosnia remains a genuinely failed state, and Kosovo and Macedonia, too, are deeply fragile polities. The EU needs Greece to serve as a force for growth right across the Balkans and not as some kind of confirmation that the EU has decided to abandon the entire region.

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Does the parliament have the guts to say no? It’s starting to look that way. EP president Schulz has refused to send the necessary documents to be appraised.

EU Parliament Raises the Rhetoric Over Turkey’s Visa-Waiver Bid (BBG)

The European Parliament added to the war of words with Turkey over its bid for visa-free travel to Europe, highlighting the risk that a hard-fought agreement with Ankara to curb the influx of Mideast refugees will collapse. Members of the European Union assembly said Turkey must narrow the scope of its terrorism legislation to qualify for EU visa-free status. That is a prize the Turkish government sought in return for signing up to the mid-March migrant accord, which has stemmed Europe’s biggest refugee wave since World War II and eased domestic political pressure on leaders including Angela Merkel. Turkish President Recep Tayyip Erdogan has signaled he won’t bow to the European demand over terrorism legislation, citing terror threats in Turkey that his critics say are being used as cover to jail political opponents.

Adding Turkey to a list of around 60 countries whose citizens benefit from hassle-free travel to Europe requires approval by EU governments and the 28-nation Parliament. “The liberalization can only be granted if all of the criteria are fulfilled,” Mariya Gabriel, a Bulgarian member of the Christian Democrats, the EU Parliament’s biggest faction, said during a debate on Wednesday in Strasbourg, France. Tanja Fajon, a Slovenian member of the No. 2 Socialists, said: “Turkey is very important to the solution to the migration crisis, but this does not mean that we should be making promises to Turkey without ensuring that all the conditions are fulfilled.” The EU-Turkey sparring is a test of geopolitical power that combines high politics, principles and pride.

The migrant flows into Europe via Turkey over the past year have handed Erdogan leverage over the EU, which has lambasted him for cracking down on domestic dissenters and kept Turkey’s longstanding bid for membership of the bloc largely on hold. Last Friday, when commenting on the EU call for Turkish terrorism-rule changes, Erdogan said “we are going our way and you go yours.” He also dared the bloc to “go make a deal with whoever you can.” In a further sign of Ankara’s renewed confidence in dealing with the EU, Burhan Kuzu, a former adviser to Erdogan, said earlier on Wednesday that Turkey would send refugees to Europe should the EU Parliament make a “wrong decision” in the deliberations over visa-free status for Turkey. “That is blackmail,” said Sophie in ’t Veld, a Dutch member of the EU Parliament’s Liberal group. She called Erdogan a “dictator.” Cecilia Wikstroem, a Swedish Liberal, said “something is rotten in this.”

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This is Europe’s epic failure. And that is what the UK Brexit vote next month is really about: do you want to be part of this?

European Rights Watchdog Complains About Greek Refugee Camps Conditions (R.)

Urgent measures are need to address overcrowding and poor living conditions in refugee and migrant camps in Greece, Europe’s top rights watchdog warned on Wednesday. The Council of Europe, which brings together 47 countries, said some facilities were “sub-standard” and able to provide no more than the most basic needs such as food, hygiene products and blankets. The report echoes warnings by other rights groups and aid agencies who say Greece has been unable to care properly for the more than 800,000 people reaching its shores in the last year, fleeing wars or poverty in the Middle East and Africa. The Council described dire living conditions in several sites visited on a March 7-11 trip, just before the EU and Turkey reached a deal that reduced arrivals but increased the number of people held in detention awaiting asylum decisions or deportation.

It said in its report that people who reached Greece were locked away in violation of international human rights standards and lacked legal access. At Greece’s Nea Kavala temporary transit camp, people were left burning trash to keep warm and sleeping in mud-soaked tents, according to the report. The Council called for the closure of a makeshift camp in Idomeni, where some 10,000 people have been stranded en route to northern Europe due to the closure of Macedonia’s border. Germany has taken in most of the 1.3 million refugees and migrants who reached Europe across the Mediterranean in the past year, triggering bitter disputes among the 28 EU member states on how to handle the influx. Europe’s deal with Turkey last month gave its leaders some breathing space but has come under pressure since Prime Minister Ahmet Davutoglu, one of the sponsors of the accord, stepped down.

The morality and legality of the deal has been challenged by human rights groups, however, and a provision to grant Turkish citizens visa-free travel to Europe in exchange for Ankara’s help remains politically contentious. In a separate report, a trio of European Parliamentarians on Tuesday described the poor conditions faced by people who have been returned to Turkey under the deal. “We have seen how the migration policies imposed by the European Union have terrible consequences on the lives of thousands of people,” said Cornelia Ernst, a German member of the European Parliament and a co-author of that report. “Turkey has been hired as a deportation agency, putting into practice the migration policies designed in Brussels.”

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Apr 072016
 
 April 7, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , ,  3 Responses »
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John M. Fox “The new Hudson” 1948

Time To Stop Dancing With Equities On A Live Volcano (AEP)
Hillary Clinton’s Corporate Cash and Corporate Worldview (Naomi Klein)
How Bad Is China’s Debt Problem, Really? (Balding)
China Traders Flee to Hong Kong in Record Stock-Buying Streak (BBG)
China Set To Shake Up World Copper Market With Exports (Reuters)
Panama Papers Reveal Offshore Secrets Of China’s Red Nobility (G.)
David Cameron’s EU Intervention On Trusts Set Up Tax Loophole (FT)
Panama Papers Reveal London As Centre Of ‘Spider’s Web’ (AFP)
How Laundered Money Shapes London’s Property Market (FT)
London Luxury-Apartment Sales Slump Triggers 20% Bulk Discounts (BBG)
US Readies Bank Rule On Shell Companies Amid ‘Panama Papers’ Fury (Reuters)
US Government, Soros Funded Panama Papers To Attack Putin: WikiLeaks (RT)
Bookmakers Set Odds For Next Leader To Resign After Panama Papers (MW)
Brexit May Force Europe’s Banks To Dump $123 Billion Of Securities (BBG)
Economics Builds a Tower of Babel (BBG)
Dutch ‘No’ Vote On Ukraine Pact Forces Government Rethink (Reuters)
Greece Sees Two-Week Lag In Migrant Returns To Turkey (AFP)

Ambrose sees inflation?!

Time To Stop Dancing With Equities On A Live Volcano (AEP)

Be very careful. The US economic expansion is long in the tooth and starting to hit the time-honoured constraints that mark the last phase of the business cycle. Wall Street equities are more stretched by a host of measures than they were at the peak of sub-prime bubble just before the Lehman crisis. All it will take to bring the S&P 500 index back to earth is a catalyst, and that is exactly what is coming into view on the macro-economic horizon. This does not mean we are on the cusp of recession or racing headlong towards some imminent reckoning, but we are probably in the final innings of this epic asset boom. Didier Saint-Georges, from fund manager Carmignac, says the “massive and indiscriminate equity market rally” since February’s panic-lows is a false dawn driven by short-covering, telling us little about the world’s deformed economic, financial, and political landscape.

Corporate earnings peaked at $1.845 trillion (£1.3 trillion) in the second quarter of 2015, and recessions typically start five to seven quarters after the peak. “We will not be dancing on the volcano like so many others,” said Saint-Georges. If we are lucky it will be a slow denouement with a choppy sideways market going nowhere for another year as the US labour market tightens, and workers at last start to claw back a greater share of the economic pie. The owners of capital have had it their way for much of the post-Lehman era, exorbitant beneficiaries of central bank largesse. Now they may have to give a little back to society. Yet this welcome “rotation” spells financial trouble. Strategists Mislav Matejka and Emmanuel Cau, from JP Morgan, have told clients to prepare for the end of the seven-year bull run, advising them to trim equities gradually and build up a safety buffer in cash.

“This is not the stage of the US cycle when one should be buying stocks with a six to 12-month horizon. We recommend using any strength as a selling opportunity,” they said. Their recent 165-page report on the subject is a sobering read. The price-to-sales ratio (P/S) of US stocks is higher than any time in the sub-prime boom. Share buy-backs are at an historic high in relation to earnings (EBIT). Net debt-to-equity ratios have blown through their historical range. This is happening despite two quarters of tighter lending by US banks. Spreads on high-yield debt have doubled since 2014, jumping by 300 basis points even after stripping out the energy bust. The list goes on; the message is clear. “One should be cutting equity weight before the weakness becomes obvious,” they said.

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Hillary equals more of the same. The same disaster.

Hillary Clinton’s Corporate Cash and Corporate Worldview (Naomi Klein)

There aren’t a lot of certainties left in the US presidential race, but here’s one thing about which we can be absolutely sure: The Clinton camp really doesn’t like talking about fossil-fuel money. Last week, when a young Greenpeace campaigner challenged Hillary Clinton about taking money from fossil-fuel companies, the candidate accused the Bernie Sanders campaign of “lying” and declared herself “so sick” of it. As the exchange went viral, a succession of high-powered Clinton supporters pronounced that there was nothing to see here and that everyone should move along. The very suggestion that taking this money could impact Clinton’s actions is “baseless and should stop,” according to California Senator Barbara Boxer. It’s “flat-out false,” “inappropriate,” and doesn’t “hold water,” declared New York Mayor Bill de Blasio.

New York Times columnist Paul Krugman went so far as to issue “guidelines for good and bad behavior” for the Sanders camp. The first guideline? Cut out the “innuendo suggesting, without evidence, that Clinton is corrupt.” That’s a whole lot of firepower to slap down a non-issue. So is it an issue or not? First, some facts. Hillary Clinton’s campaign, including her Super PAC, has received a lot of money from the employees and registered lobbyists of fossil-fuel companies. There’s the much-cited $4.5 million that Greenpeace calculated, which includes bundling by lobbyists. One of Clinton’s most active financial backers is Warren Buffett, who is up to his eyeballs in coal. But that’s not all. There is also a lot more money from sources not included in those calculations. For instance, one of Clinton’s most prominent and active financial backers is Warren Buffett.

While he owns a large mix of assets, Buffett is up to his eyeballs in coal, including coal transportation and some of the dirtiest coal-fired power plants in the country. Then there’s all the cash that fossil-fuel companies have directly pumped into the Clinton Foundation. In recent years, Exxon, Shell, ConocoPhillips, and Chevron have all contributed to the foundation. An investigation in the International Business Times just revealed that at least two of these oil companies were part of an effort to lobby Clinton’s State Department about the Alberta tar sands, a massive deposit of extra-dirty oil. Leading climate scientists like James Hansen have explained that if we don’t keep the vast majority of that carbon in the ground, we will unleash catastrophic levels of warming.

During this period, the investigation found, Clinton’s State Department approved the Alberta Clipper, a controversial pipeline carrying large amounts of tar-sands bitumen from Alberta to Wisconsin. “According to federal lobbying records reviewed by the IBT,” write David Sirota and Ned Resnikoff, “Chevron and ConocoPhillips both lobbied the State Department specifically on the issue of ‘oil sands’ in the immediate months prior to the department’s approval, as did a trade association funded by ExxonMobil.”

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“All this leads one to think that the government doesn’t recognize the severity of the problem.”

How Bad Is China’s Debt Problem, Really? (Balding)

For months now, China’s regulators have been warning about the dangers of rapidly expanding credit and the need to deleverage. With new plans to clean up bad loans at the country’s banks, you might conclude that the government is getting serious about the risks it faces. But there’s reason to doubt the effectiveness of China’s approach. In fact, it’s running a serious risk of making its debt problems worse. After the financial crisis, China embarked on a credit binge of historical proportions. In 2009, new loans grew by 95%. The government offered cheap credit to build apartments for urban migrants, airports for the newly affluent and roads to accommodate a fleet of new cars. Yet as lending grew at twice the rate of GDP, problems started bubbling up. Companies gained billion-dollar valuations, then collapsed when they couldn’t profit.

Enormous surplus capacity drove down prices. Excessive real-estate lending led to the construction of “ghost cities.” Asset bubbles popped and bad loans mounted. China’s policy makers say they recognize these problems. The government’s most recent 5-year plan, released in December, notes the need for deleveraging. The PBOC has talked up the party line about slowing credit growth and making high-quality loans. Yet officials still say that only about 1.6% of commercial-banking loans are nonperforming. Some analysts put the real figure closer to 20%. And Beijing’s primary plan to address the problem – allowing companies to swap their debt with banks in exchange for equity – actually creates new risks. For one thing, while a debt-for-equity swap may help excessively indebted firms, it will wreak havoc with banks.

Directly, a given bank will no longer receive the cash flow from interest and principal payments. Indirectly, it won’t be able to sell equity to the PBOC or to other banks as it could with a loan. Valuing the equity could present a bigger problem. In China, banks must count 100% of loans made to non-financial companies against their reserve requirements. When they invest in equity, however, they must set aside 400% of the value of the investment. If the debt isn’t worth face value to the bank, it seems unlikely that the equity is worth far more – suggesting that large write-downs will be required. The swaps program also creates a number of big-picture problems. Consider the tight relationship between banks and large government-linked companies.

If banks were under pressure to roll over loans when they were creditors hoping to get repaid, what will their incentive be when they own the firm and have essentially unlimited lending capacity? Another problem is that Chinese industry exists in a deflationary debt spiral: Prices have been falling for years, raising the real cost of repaying loans. If companies are relieved of their debt, they’ll have an incentive to reduce prices to gain market share, thus worsening one of the primary causes of the current malaise. All this leads one to think that the government doesn’t recognize the severity of the problem. Debt-for-equity swaps and loan rollovers simply aren’t long-term solutions for ailing companies on the scale China faces.

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All that monopoly money behaves like liquid gas.

China Traders Flee to Hong Kong in Record Stock-Buying Streak (BBG)

Cash is pouring into Hong Kong stocks from across the mainland border. Chinese investors have been net buyers of the city’s shares for 104 consecutive trading days, sinking 43.8 billion yuan ($6.8 billion) into equities from October through Tuesday, according to data compiled by Bloomberg tracking investments via the exchange link with Shanghai. Mainland traders have now put more money into Hong Kong than global asset managers have invested in Shanghai, a reversal of flows in the link’s first year, the data show. As concern persists about a further slide in the yuan, Chinese investors are piling into cheaper shares across the border that have lagged behind mainland counterparts for years.

While the flows are small relative to estimates of the record capital flight from China in 2015, they’re another sign of what’s at stake for policy makers seeking to stabilize the currency and stem outflows by providing credible investment options at home. “In China, there is talk of an asset drought – people don’t find domestic assets particularly attractive,” said Tai Hui at JPMorgan. “They are investing overseas in any way possible including via the southbound stock connect.” Buying mainland Chinese stocks has been a losing proposition this year, with the benchmark Shanghai Composite Index down 14%. Other investment alternatives such as property are coming under scrutiny as authorities impose fresh curbs after home prices jumped in the biggest cities such as Shanghai and Shenzhen.

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What’s next? Compete with OPEC?

China Set To Shake Up World Copper Market With Exports (Reuters)

China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs, onto the global market. Four traders of copper, including two from state-owned Chinese smelters, said they expect China to raise its copper exports – which are usually tiny – in the next few months. China’s refined copper exports averaged less than 10,000 tonnes a month in the first two months of 2016, and around 17,000 a month in 2015. If higher exports materialize, they will be a major jolt to producers and investors in the metal across the world – in particular because it would come during what is traditionally the strongest period of demand for copper from China, the world’s largest consumer of the metal. It will also be a further sign that the Chinese economy is still struggling against headwinds. Some sectors that buy copper – such as construction and manufacturing – have been hit especially hard in the past couple of years.

Traders and analysts in China say slowing building construction and electronics manufacturing has stifled demand for refined copper from the nation’s massive smelting sector at a time when the country is already swimming in the metal. China’s copper consumption has been a crucial measure of the country’s economic growth as the metal forms the essential network of its infrastructure, carrying water, conducting electricity and comprising the circuits in its machines. “The situation for copper smelters in China is probably the worst it has been in 20 years. But they won’t admit it. It wouldn’t surprise me in the least (if they start exporting),” said a source at an Asian copper producer, who declined to be named because he is not authorized to speak to the media. Increasing Chinese exports would mark an abrupt turnaround in global copper trade flows as China’s refined copper imports hit a record in 2015.

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Looking at China, it’s hard not to think of 1789, Robespierre, Marie-Antoinette, Bastille. Napoleon next?

Panama Papers Reveal Offshore Secrets Of China’s Red Nobility (G.)

The eight members of China’s Communist party elite whose family members used offshore companies are revealed in the Panama Papers. The documents show the granddaughter of a powerful Chinese leader became the sole shareholder in two British Virgin Islands companies while still a teenager. Jasmine Li had just begun studying at Stanford University in the US when the companies were registered in her name in December 2010. Her grandfather Jia Qinglin was at that time the fourth-ranked politician in China. Other prominent figures who have taken advantage of offshore companies include the brother-in-law of the president, Xi Jinping, and the son-in-law of Zhang Gaoli, another member of China’s top political body, the politburo standing committee.

They are part of the “red nobility”, whose influence extends well beyond politics. Others include the daughter of Li Peng, who oversaw the brutal retaliation against Tiananmen Square protestors; and Gu Kailai, wife of Bo Xilai, the ex-politburo member jailed for life for corruption and power abuses. The relatives had companies that were clients of the offshore law firm Mossack Fonseca. There is nothing in the documents to suggest that the politicians in question had any beneficial interest in the companies connected to their family members. Since Monday, China’s censors have been blocking access to the unfolding revelations about its most senior political families. There are now reports of censors deleting hundreds of posts on the social networks Sina Weibo and Wechat, and some media organisations including CNN say parts of their websites have been blocked.

The disclosures come amid Xi Jinping’s crackdown on behaviour that could embarrass the Communist party. Two more well-connected figures – the brother of former vice-president Zeng Qinghong and the son of former politburo member Tian Jiyun – are directors of a single offshore company. They have previously been linked in a court case that highlighted how some Chinese “princelings” have used political connections for financial gain. They have emerged from the internal data of the offshore law firm Mossack Fonseca. [..] China and Hong Kong were Mossack Fonseca’s biggest sources of business, with clients from these jurisdictions linked to a total of 40,000 companies past and present. About a quarter of these are thought to be live: in 2015, records show the firm was collecting fees for nearly 10,000 companies linked to Hong Kong and China. The Mossack Fonseca franchise now has offices in eight Chinese cities, according to its website

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How much pressure will he get?

David Cameron’s EU Intervention On Trusts Set Up Tax Loophole (FT)

David Cameron personally intervened in 2013 to weaken an EU drive to reveal the beneficiaries of trusts, creating a possible loophole that other European nations warned could be exploited by tax evaders. The disclosure of the prime minister’s resistance to opening up trusts to full scrutiny comes as he faces intense pressure to make clear whether his family stands to benefit from offshore assets linked to his late father. Although Mr Cameron championed corporate tax transparency, he wrote in November 2013 to Herman Van Rompuy, president of the European Council at the time, to argue that trusts widely used for inheritance planning in Britain should win special treatment in an EU law to tackle money laundering.

In the letter, seen by the Financial Times, Mr Cameron said: “It is clearly important we recognise the important differences between companies and trusts. This means that the solution for addressing the potential misuse of companies, such as central public registries, may well not be appropriate generally.” Britain has emerged as the strongest European rival to Switzerland for private banking and wealth management, administering £1.2tn of assets, according to Deloitte. The sector contributed £3.2bn to the economy, according to 2014 estimates from the British Bankers’ Association. A senior government source said that Mr Cameron’s letter reflected official advice that creating a central registry for trusts would have been complex and would have distracted from the main objective of shining a light on the ownership of shell companies.

“It would have slowed down the process because of the different types of trust involved,” the official said. “They are sometimes used to protect vulnerable people, so that would have been an extra complication. “As the directive went through we reached a position where trusts which generate tax consequences had to demonstrate their ownership to HM Revenue & Customs.” According to officials, the UK stance in 2013 prompted clashes with France and Austria as well as with members of the European Parliament, who accused Britain of double standards in the fight against tax avoidance. Maria Fekter, the Austrian finance minister at the time, had attacked Britain earlier that year as “the island of the blessed for tax evasion and money laundering”. She cited trusts as a specific problem.

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“London is the epicentre of so much of the sleaze that happens in the world..”

Panama Papers Reveal London As Centre Of ‘Spider’s Web’ (AFP)

As-well as shining a spotlight on the secret financial arrangements of the rich and powerful, the so-called Panama Papers have laid bare London’s role as a vital organ of the world’s tax-haven network. The files leaked from Panama law firm Mossack Fonseca exposed Britain’s link to thousands of firms based in tax havens and how secret money is invested in British assets, particularly London property. Critics accuse British authorities of turning a blind eye to the inflow of suspect money and of being too close to the financial sector to clamp down on the use of its overseas territories as havens, with the British Virgin Islands alone hosting 110,000 of the Mossack Fonseca’s clients. “London is the epicentre of so much of the sleaze that happens in the world,” Nicholas Shaxson, author of the book “Treasure Islands”, which examines the role of offshore banks and tax havens, told AFP.

The political analyst said that Britain itself was relatively transparent and clean, but that companies used the country’s territories abroad – relics of the days of empire – to “farm out the seedier stuff”, often under the guise of shell companies with anonymous owners. “Tax evasion and stuff like that will be done in the external parts of the network. Usually there will be links to the City of London, UK law firms, UK accountancy firms and to UK banks,” he said, calling London the centre of a “spider’s web”. “They’re all agents of the City of London – that is where the whole exercise is controlled from,” Richard Murphy, professor at London’s City University, said of the offshore havens. The files showed that Britain had the third highest number of Mossack Fonseca’s middlemen operating within its borders, with 32,682 advisers.

Although not illegal in themselves, shell companies can be used for illegal activities such as laundering the proceeds of criminal activities or to conceal misappropriated or politically-inconvenient wealth. Around 310,000 tax haven companies own an estimated £170 billion (210 billion euros, $240 billion) of British real estate, 10% of which were linked to Mossack Fonseca. The files appeared to show that the United Arab Emirates President Sheikh Khalifa bin Zayed Al-Nahyan owned London properties worth more than £1.2 billion and that Mariam Safdar, daughter of Pakistani prime minister Nawaz Sharif, was the beneficial owner of two offshore companies that owned flats on the exclusive Park Lane.

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“..the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”

How Laundered Money Shapes London’s Property Market (FT)

For three-quarters of Londoners under 35, owning a home in the capital remains out of reach. But according to the leaked Panama Papers, buying property in London presented little problem for associates of Bashar al-Assad, the Syrian president; for a convicted embezzler who is also the son of a former Egyptian president; or for a Nigerian senator facing corruption charges. The leaks from the Panamanian law firm Mossack Fonseca have brought back into focus the ownership of London property via offshore companies by people suspected of corruption overseas — a phenomenon that has helped to shape the capital’s housing market, where prices are up 50% since 2007. “We think it very likely that the influx of corrupt money into the housing market has pushed up prices,” said Rachel Davies, senior advocacy manager at Transparency International.

Donald Toon, head of the National Crime Agency, has gone further, saying last year that “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”. Since 2004 £180m of UK property has been subject to criminal investigation as suspected proceeds of corruption, according to Transparency International data from 2015. Yet this probably represented “only a small proportion of the total”, added the campaign group. Most of these properties were bought using anonymous shell companies based in offshore tax havens such as the British Virgin Islands. Overseas companies own 100,000 properties in England and Wales, Land Registry data show. Owning property through a company can present tax advantages but, depending where that company is based, it can also offer anonymity.

According to Transparency International figures, almost one in 10 properties in the London borough of Kensington & Chelsea is owned through a “secrecy jurisdiction” such as the British Virgin Islands, Jersey or the Isle of Man. “UK property can be acquired anonymously, anti-money-laundering checks can be bypassed with relative ease, and if you invest in luxury property in London you know your investment is safe. All that comes from the flaws in the UK anti-money-laundering system,” said Ms Davies. According to the documents leaked to the International Consortium of Investigative Journalists, Soulieman Marouf, an al-Assad associate whose assets in Europe were frozen for two years from 2012, holds luxury flats in London worth almost £6m through British Virgin Islands companies.

The family of a deceased former Syrian intelligence chief owns a £1.2m Battersea home, the Guardian reported. The documents also link Alaa Mubarak — a son of Hosni Mubarak, the former Egyptian president — who was jailed and released last year for corruption, to an £8m Knightsbridge property. Bukola Saraki, the president of the Nigerian senate who faces charges in his home country of failing to declare assets, owns a Belgravia property, while a second is held by companies in which his wife and former special assistant are shareholders. Mr Saraki denies any wrongdoing and says he declared his assets in accordance with the law.

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This bubble too will burst.

London Luxury-Apartment Sales Slump Triggers 20% Bulk Discounts (BBG)

Developers in central London are offering institutional investors discounts of as much as 20% on bulk purchases of luxury apartments as demand from international buyers slumps amid higher taxes and low commodity prices. Concessions of about that magnitude are being offered to investors willing to take 100 homes or more, according to Killian Hurley, chief executive officer of London developer Mount Anvil. Broker CBRE is negotiating discounts of as much as 15% for bulk purchases on the fringes of the capital’s best districts, said Chris Lacey, head of U.K. residential investment. A record number of high-end homes are planned in London districts such as Nine Elms and Earls Court even as demand wanes.

Sales of properties under construction in the U.K. capital slumped 19% in the fourth quarter of 2015, according to researcher Molior, while the percentage of overseas buyers fell to 20% from about 33% a year earlier, broker Hamptons International data show. “We will see distress in prime central London and in Nine Elms, where there has been a lot of international investment,” Andrew Stanford at LaSalle Investment said in an interview. “There have been a number of house builders who have approached us directly with schemes as a direct result of off-plan sales falling, particularly in central London.” Bulk buyers may be hard to find because the apartments being built aren’t designed for the rental market, lacking features such as equal-size bedrooms, said Stanford, whose company has invested more than $457 million in U.K. multifamily housing on behalf of clients.

Many developers traveled to Asia to sell homes in advance of construction and secure cheaper development loans because the down payments made projects less risky. The imposition of higher purchase taxes has now reduced the appeal of the costliest properties, leaving developers wondering how they will secure funding, said Dominic Grace, head of London residential development at broker Savills. “It is a question everyone is asking, and the truth is no one really knows,” Grace said.

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Sure..

US Readies Bank Rule On Shell Companies Amid ‘Panama Papers’ Fury (Reuters)

The U.S. Treasury Department intends to soon issue a long-delayed rule forcing banks to seek the identities of people behind shell-company account holders, after the “Panama Papers” leak provoked a global uproar over the hiding of wealth via offshore banking devices. A department spokesman said on Wednesday the rule would “soon” be turned over to the White House for review and issuance, but did not confirm any timetable for the initiative, which has taken years. Governments around the globe have launched probes into possible financial wrongdoing after 11.5 million documents from the Panamanian law firm Mossack Fonseca, nicknamed the “Panama Papers,” were leaked to the media and reports emerged Sunday. Mossack Fonseca has said it was the victim of a computer hack, and that it has consistently acted appropriately.

The papers offer “validation for those who have been screaming for a decade” about the need for financial institutions in the United States and elsewhere to address risks of money laundering, terror finance and other crime by identifying people who clandestinely control legal entities, former Treasury official Chip Poncy told Reuters. The leaked documents may give banks a glimpse into the kind of information on true, or “beneficial” owners, that they regularly should be obtaining to better understand the cross-border money flows they facilitate, said Poncy, one of the architects of the Treasury rule, which has been in the works since 2012.

But simply having a client who is linked to the offshore shell companies highlighted in the Panama papers “doesn’t necessarily mean much,” said a former FinCEN official who asked not to be named due to his role in the private sector. What would be significant is “inconsistent information or payment flows that now connect” in ways that suggest possible illicit activity, he said.

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“We have innuendo, we have a complete lack of standards on the part of the western media, and the major mistake made by the leaker was to give these documents to the corporate media..”

US Government, Soros Funded Panama Papers To Attack Putin: WikiLeaks (RT)

Washington is behind the recently released offshore revelations known as the Panama Papers, WikiLeaks has claimed, saying that the attack was “produced” to target Russia and President Putin. On Wednesday, the international whistleblowing organization said on Twitter that the Panama Papers data leak was produced by the Organized Crime and Corruption Reporting Project (OCCRP), “which targets Russia and [the] former USSR.” The “Putin attack” was funded by the US Agency for International Development (USAID) and American hedge fund billionaire George Soros, WikiLeaks added, saying that the US government’s funding of such an attack is a serious blow to its integrity. Organizations belonging to Soros have been proclaimed to be “undesirable” in Russia.

Last year, the Russian Prosecutor General’s Office recognized Soros’s Open Society Foundations and the Open Society Institute Assistance Foundation as undesirable groups, banning Russian citizens and organizations from participation in any of their projects. Prosecutors then said the activities of the institute and its assistance foundation were a threat to the basis of Russia’s constitutional order and national security. Earlier this year, the billionaire US investor alleged that Putin is “no ally” to US and EU leaders, and that he aims “to gain considerable economic benefits from dividing Europe.” “The American government is pursuing a policy of destabilization all over the world, and this [leak] also serves this purpose of destabilization. They are causing a lot of people all over the world and also a lot of money to find its way into the [new] tax havens in America. The US is preparing for a super big financial crisis, and they want all that money in their own vaults and not in the vaults of other countries,” German journalist and author Ernst Wolff told RT.

Earlier this week, the head of the International Consortium of Investigative Journalists (ICIJ), which worked on the Panama Papers, said that Putin is not the target of the leak, but rather that the revelations aimed to shed light on murky offshore practices internationally. “It wasn’t a story about Russia. It was a story about the offshore world,” ICIJ head Gerard Ryle told TASS. His statement came in stark contrast to international media coverage of the “largest leak in offshore history.” Although neither Vladimir Putin nor any members of his family are directly mentioned in the papers, many mainstream media outlets chose the Russian president’s photo when breaking the story.

“We have innuendo, we have a complete lack of standards on the part of the western media, and the major mistake made by the leaker was to give these documents to the corporate media,” former CIA officer Ray McGovern told RT. “This would be humorous if it weren’t so serious,” he added. “The degree of Putinophobia has reached a point where to speak well about Russia, or about some of its actions and successes, is impossible. One needs to speak [about Russia] in negative terms, the more the better, and when there’s nothing to say, you need to make things up,” Kremlin spokesman Dmitry Peskov has said, commenting on anti-Russian sentiment triggered by the publications. WikiLeaks spokesman and Icelandic investigative journalist Kristinn Hrafnsson has called for the leaked data to be put online so that everybody could search through the papers. He said withholding of the documents could hardly be viewed as “responsible journalism.”

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Almost funny.

Bookmakers Set Odds For Next Leader To Resign After Panama Papers (MW)

Whose scalp will the Panama Papers scandal claim next? Irish bookmaker Paddy Power has opened betting lines on which head of state could be the next to go. “Who needs the Grand National when you’ve got the Panama Papers to punt on?” the betting line boasted in a press release on Wednesday. Icelandic Prime Minister Sigmundur Gunnlaugsson, announced yesterday he was stepping down after Panama Papers revelations that he and his wife sought to hide their claims on Icelandic banks that were bailed out by his administration during the financial crisis. Paddy Power puts the odds of British Prime Minister David Cameron resigning next at 20-1. The leaked documents outed Cameron’s father Ian Cameron as a client of the Panamanian law firm, Mossack Fonseca, at the center of the scandal.

Cameron’s father used a secret but legal offshore structure to set up a fund for investors. After saying all day Monday that his tax affairs were a “private matter”, media questions about his family’s remaining interest in the fund forced Cameron’s office, according to BBC reports, to issue a statement affirming that his family “[does] not benefit from any offshore trusts.” A surer bet according to the bookmaker is Argentina’s President Mauricio Macri at 8-1 odds. Macri won last year’s general election campaigning on a platform promising to fight corruption but the leaked documents say he was a director of Fleg Trading Ltd, founded in 1998 by his father Franco Macri, one of the richest men in Argentina. The company was dissolved in January 2009. “It was an offshore company to invest in Brazil, an investment that ultimately wasn’t completed, and where I was director,” he said in a television interview with a local program.

A Paddy Power spokesman told MarketWatch that to pay off, the leader has to leave “after being implicated specifically in the Panama Papers.” There have already been a few bets made that Macri and Cameron are next, he said. Paddy Power also has laid odds that the President of Pakistan Nawaz Sharif will leave at 10-to-1 and Ukraine’s President Petro Poroshenko almost as good at 12-1. Sharif is mentioned in the leak as the result of a £7 million loan from Deutsche Bank backed up by four London apartments owned by offshore companies established by Mossack Fonseca. Poroshenko – nicknamed the ‘chocolate king’ – hid his ongoing interest in his candy company, Roshen, in a blind trust offshore when he became president in 2014. He had promised to sell it after being elected. Longshots to leave include President Xi Jinping of China, Russia’s Putin and France’s Francois Hollande, all set at 33-1.

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Coming closer.

Brexit May Force Europe’s Banks To Dump $123 Billion Of Securities (BBG)

If Britain decides to leave the EU, a corner of the credit market may depart with it and European banks could be left having to replace as much as €108 billion ($123 billion) of securities. Lenders from the EU that bought bonds backed by U.K. mortgages, bank loans and credit-card debt may find themselves caught up in the fallout of a “Brexit” because the debt might no longer count toward their emergency cash reserves. While a settlement with the bloc would take years to reach, lawyers and analysts are beginning to flag concerns about holdings of the asset-backed securities, a market that’s already been hammered since the financial crisis.

“Banks could find themselves having a liquidity issue if these assets no longer count,” said Vincent Keaveny at law firm DLA Piper, who specializes in structured credit. “There are big risks out there, but there aren’t any easy fixes.” Under the Basel Accords, a set of agreements by global regulators, banks must meet minimum standards meant to make them more resilient to shocks after the financial crisis highlighted their weaknesses. One standard, known as the Liquidity Coverage Ratio, requires banks maintain an adequate amount of high-quality assets that can be quickly converted to cash to meet liquidity needs for 30 days.

Certain securitized notes are counted, but their underlying assets must originate from a member state, according to the European Commission’s Delegated Act for the standard. That means some bonds backed by collateral from a newly go-it-alone Britain may be excluded. “‘Brexit’ could result in certain U.K. ABS no longer qualifying as eligible assets for current LCR purposes,” Angela Clist and Nicole Rhodes, London-based lawyers specializing in securitization at Allen & Overy LLP, wrote in a note to clients in February.

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“When economists say “equilibrium,” what they really mean is “any solution to any equations I decide to write down.”

Economics Builds a Tower of Babel (BBG)

In Lewis Carroll’s “Through the Looking Glass,” Humpty Dumpty proudly declares: “When I use a word, it means just what I choose it to mean – neither more nor less.” To which Alice replies: “The question is whether you can make words mean so many different things.” Humpty Dumpty could have been an economist. The modern economics profession made a collective decision, long ago, to develop a system of jargon in which words have multiple, sometimes contradictory meanings. Unfortunately, the general public’s reaction tends to be similar to that of poor Alice. Want some examples? There’s no shortage. Let’s take the word “investment.” Most people think this means buying some financial assets, such as stocks or bonds. That’s basically a form of lending – you give someone money today, and you hope they’ll give you back more money tomorrow.

Economists call that “financial investment,” but the kind of investment they usually talk about is business investment, meaning a company’s purchase of capital goods. Since companies use debt to buy capital goods (or use their own cash, which is essentially the same thing), this kind of “investment” is actually a type of borrowing. So economists use the same word to mean both borrowing and lending! That couldn’t possibly result in any confusion, right? Two similar examples are “capital” and “equity.” “Equity” can mean stock – partial ownership of a company – or it can refer to “shareholders’ equity,” which is a measure of the value of a business. “Capital” in econ can mean financial capital, i.e. money in the bank. More commonly, it refers to capital goods – productive stuff such as buildings or machines that help you create more stuff.

Though economists usually use the term in the second way, many people outside the profession refer to financial capital as “economic capital.” Confused yet? We’re just getting started. Everyone knows that economists love models where rational agents interact in an efficient market that reaches equilibrium, right? Except that almost every word in that sentence is complete nonsense, thanks to econ’s Humpty Dumpty-like tendency to redefine words without telling anyone. So how about “equilibrium”? The word used to refer to a situation where prices adjust in order to clear markets, so that supply matches demand. Later, game theorists came up with “Nash equilibrium,” named after mathematician John Nash, which refers to a situation where everyone is responding optimally to everyone else in a strategic situation. Other concepts proliferated, and so by now the word has lost all meaning entirely. When economists say “equilibrium,” what they really mean is “any solution to any equations I decide to write down.”

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Will the EU survive?

Dutch ‘No’ Vote On Ukraine Pact Forces Government Rethink (Reuters)

The Dutch government said on Wednesday it could not ignore the resounding “No” in a non-binding referendum on the EU’s association treaty with Ukraine, but that it may take weeks to decide how to respond. Although the results were preliminary, they exposed dissatisfaction with the Dutch government and policy-making in Brussels – signalling a anti-establishment mood in a founding EU member weeks before Britain votes on membership. There could also be far-reaching consequences for the fragile Dutch coalition government, which currently holds the rotating EU presidency and which has lost popularity amid a wave of anti-immigrant sentiment. Exit polls indicated roughly 64% of Dutch voters voted “No” and 36% said “Yes”. Although turnout was too close to call, early tallies indicated it was just ahead of a turnout minimum of 30% required for the vote to be valid.

“It’s clear that ‘No’ have won by an overwhelming margin, the question is only if turnout is sufficient,” Dutch Prime Minister Mark Rutte said in a televised reaction. “If the turnout is above 30% with such a large margin of victory for the ‘No’ camp, then my sense is that ratification can’t simply go ahead,” Rutte added. That sentiment was shared by Diederik Samsom, leader of the Labour Party, the junior partner the governing coalition. “We can’t ratify the treaty in this fashion,” he said. A person familiar with internal EU discussions on how leaders in Brussels would respond said EU officials had been hoping for very low turnout that would disqualify or diminish the impact of a “No” vote. The European Commission, the bloc’s executive, will play for time, waiting for the Dutch government to suggest a way forward, the official said. The political, trade and defence treaty is already provisionally in place, but has to be ratified by all 28 EU member countries for every part of it to have full legal force. The Netherlands is the only country that has not done so.

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Monday there was a lot of media and brouhaha, and then they have a 17-day hiatus? EU-Assclowns.

Greece Sees Two-Week Lag In Migrant Returns To Turkey (AFP)

A last-minute flurry of asylum applications by migrants desperate to avoid expulsion from Greece to Turkey will likely cause a two-week “lag” in an EU deportation plan slammed by rights groups, a Greek official said Wednesday. Nikos Xydakis, junior foreign minister for European affairs, indicated there would likely be few migrants sent back to Turkey over the next two weeks, following the first deportation of around 200 people on Monday. “We knew there would be a lag, an intermediate period before the program takes off, of at least two weeks to get through the first batch of (asylum) applications,” Xydakis told reporters. He nevertheless said the next set of expulsions would likely take place “from Friday onwards”, without going into further detail.

Athens stressed that the people shipped back to Turkey on Monday were migrants who had not claimed asylum. But the UN’s refugee agency has expressed concern that 13 of them, mostly Afghans, had expressed a wish to claim asylum but were not registered in time. Xydakis said some two dozen EU legal experts had arrived so far to assist the asylum process, compared to hundreds of security agents from EU border agency Frontex. “This is the weakness of the whole procedure. It is easier to deploy police officers than experts in refugee law, interpreters, debriefers,” he said. But he added: “They are coming.” Once the system is fully up and running, Greece has said it can process asylum claims in two weeks. “In two weeks (authorities) can get through 400 to 500 applications,” Xydakis said.

Under the terms of the EU-Turkey deal, all “irregular migrants” arriving on the Greek islands from Turkey since March 20 face being sent back, although the accord calls for each case to be examined individually. And for every Syrian refugee returned, another Syrian refugee will be resettled from Turkey to the EU, with numbers capped at 72,000. “It was overestimated that in five days everything would begin, it was crazy. We told them many times in Brussels, we knew,” Xydakis said. “Things must be done by the book, we cannot bundle people together, they have to be certified and checked,” the minister said. Out of around 6,000 migrants who have arrived on the islands of Chios and Lesvos after the March 20 deadline, more than 2,300 have now applied for asylum. And many others had previously complained of not having had access to the asylum procedure.

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May 282015
 
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Walker Evans Vicksburg, Mississippi. “Vicksburg Negroes and shop fronts” 1936

US Firms Spend More on Buybacks Than Factories (WSJ)
You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics. (Vox)
40% of American Workers Now Have ‘Contingent’ Jobs (Forbes)
Fossil Industry Faces A Perfect Political And Technological Storm (AEP)
The Tanker Market Is Sending a Big Warning to Oil Bulls (Bloomberg)
China Stocks Plunge 6.5%, Worst Selloff In 4 Months (CNBC)
Yen Drops to 12-Year Low as Yellen Builds Case for Fed Rate Rise (Bloomberg)
US To Urge Greece, Creditors To End Brinkmanship At G7 Meeting (Guardian)
Greek Bank Losses Show Predicament Amid Record Deposit Outflows (Bloomberg)
Athens, Creditors Offer Conflicting Views On Negotiations (Kathimerini)
Romantic Notions Meet Reality (Alexis Papachelas)
Grexit and the Morning After (Krugman)
Australia Property Boom Is On Borrowed Time (Business Spectator)
US Treats FIFA Like the Mafia (Bloomberg)
You’ll Be Sorry When The Robot McJournalists Take Over (Irish Times)
Julian Assange: TPP Isn’t About Trade, But Corporate Control (Democracy Now)
The Cheapest Way To Help the Homeless: Give Them Homes (Mother Jones)
US Droughts Set To Be Worst In 1000 Years (OnEarth)
Fossil Fuel Burning Nearly Wiped Out Life On Earth 250m Years Ago (Monbiot)
A 19th Century Shipwreck Could Give Canada Control of the Arctic (Bloomberg)
The Tiny House Powered Only by Wind and Sun (Atlantic)

Behold: an economy broken to the bone. No investement in manufacturing capacity equals no confidence in the future.

US Firms Spend More on Buybacks Than Factories (WSJ)

U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development. Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

As the trend picks up steam, so too has debate about whether activist investors—who take sizable stakes in companies, then agitate for changes they think will boost share prices—have caused companies to tilt too far toward short-term rewards. Laurence Fink, chief executive of BlackRock, the world’s largest money manager, argued as much in a March 31 letter to S&P 500 CEOs. “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”

An analysis conducted for The Wall Street Journal by S&P Capital IQ shows that companies in the S&P 500 index sharply increased their spending on dividends and buybacks to a median 36% of operating cash flow in 2013, from 18% in 2003. Over that same decade, those companies cut spending on plants and equipment to 29% of operating cash flow, from 33% in 2003. At S&P 500 companies targeted by activists, the spending cuts were more dramatic. Targeted companies reduced capital expenditures in the five years after activists bought their shares to 29% of operating cash flow, from 42% the year before, the Capital IQ analysis shows. Those companies boosted spending on dividends and buybacks to 37% of operating cash flow in the first year after being approached, from 22% in the year before.

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Rent seeking.

You’ve Met Hillarynomics. Now Meet Left-of-Hillarynomics. (Vox)

Conventional thinking holds that wealth should be invested and, through investment, put to productive use, with those investments creating job opportunities and higher wages. Alternatively, if few productive investment opportunities are available, the return on invested wealth should start falling. It ought to be a self-correcting cycle in which wealth cannot outpace incomes for long. But the return from capital remains high, and wages are stagnating. Something’s gone wrong. The problem, Stiglitz and his co-authors write, is that the rise in wealth isn’t coming from productive investments. It’s coming from what economists call rents — a metaphorical extension of the 18th-century practice of small farmers paying rent to landlords for the right to use the total inert asset of land.

Stiglitz and his co-authors extend the idea to include a wider and more modern array of rents. A patent or a copyright, for example, can be a valuable financial commodity to own, even without being productive in the way a factory or tractor is. To see the distinction, imagine you have $300 million and can either invest it in a startup or use it to buy the rights to the Beatles’ songs. In the former case, you’re providing money that a company can then use to hire people, produce goods, and generally create wealth in the world. In the latter, you’re producing nothing; you’re just grabbing something that someone else produced and claiming the proceeds from it. “Rent-seeking,” as economists call it, is generally viewed as economically counterproductive. It’s especially counterproductive when it becomes so lucrative as to provide a more attractive outlet for people’s money than real investments.

The report’s authors argue that’s exactly what’s happening with Wall Street. Its growth has fueled a big rise in credit — credit that tends to go to those who already have wealth, often in the form of rents, exacerbating existing rent-based problems. Financiers have also identified novel ways to rent-seek. “Too big to fail” status, for example, can count as a rent. It increases the value of firms like Goldman Sachs or JPMorgan Chase not by making them more productive, but by providing an implicit government subsidy. Trading mortgage-backed securities for profit, similarly, does little to actually increase wealth but a lot to redirect it. That makes it attractive as a business activity for banks and hedge funds, redirecting their energies from profitable activities that create wealth.

Many of these rents are explicitly created by government policies. “Too big to fail” is an obvious example, but financial deregulation more broadly has made speculation vastly more profitable in recent decades, encouraging rent-seeking on the part of financial firms. Stiglitz and his co-authors also finger tax cuts for the wealthy as a culprit. [..] countries that slashed their top marginal tax rates the most in recent decades also saw the biggest increases in inequality before taxes. That might make sense if the tax cuts boosted growth, but that wasn’t really what happened. [..] the tax cuts gave top earners bigger incentive to extract rents for themselves, to bargain hard to increase their share of the company’s wages. In the 1950s, when the top marginal tax rate in the US was 91%, getting an extra $1 in income through rents only yielded $0.09 after taxes. Today, it means getting $0.60. That’s a sixfold increase — a huge increase in the incentive to find rents for oneself.

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All the job protection our (grand-)parents fought for are gone.

40% of American Workers Now Have ‘Contingent’ Jobs (Forbes)

Tucked away in the pages of a new report by the U.S. General Accounting Office is a startling statistic: 40.4% of the U.S. workforce is now made up of contingent workers—that is, people who don’t have what we traditionally consider secure jobs. There is currently a lot of debate about how contingent workers should be defined. To arrive at the 40.4 %, which the workforce reached in 2010, the report counts the following types of workers as having the alternative work arrangements considered contingent. (The government did some rounding to arrive at its final number, so the numbers below add up to 40.2%).

Agency temps: (1.3%); On-call workers (people called to work when needed): (3.5%); Contract company workers (3.0%); Independent contractors who provide a product or service and find their own customers (12.9%); Self-employed workers such as shop and restaurant owners, etc. (3.3%); Standard part-time workers (16.2%). In contrast, in 2005, 30.6% of workers were contingent. The biggest growth has been among people with part time jobs. They made up just 11.9% of the labor force in 2005. That means there was a 36% increase in just five years. The report uses data from the Bureau of Labor Statistics. It begs an important question: Are traditional jobs—the foundation of our consumer economy–running their course and going the way of the typewriter and eight-track tape? And if so, what do we do about it?

This report is important because it’s the first time since the Great Recession that the U.S. government has taken stock of how many people are working without the protections that come with traditional, full-time W-2 jobs. It reinforces estimates of the independent workforce that have come from observers ranging from the Freelancers Union to Faith Popcorn and are in a similar ballpark. Many people in this workforce are struggling economically. In a note issued with the report, Senators Patty Murray (D-WA) and Kirsten Gillibrand (D-NY) write, “Because contingent work can be unstable, or may afford fewer protections depending on a worker’s particular employment arrangement, it tends to lead to lower earnings, fewer benefits, and a greater reliance on public assistance than standard work.”

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Sorry, technodreamers, but we will never power anything like our present economy on renewables. Ambrose has no clue.

Fossil Industry Faces A Perfect Political And Technological Storm (AEP)

The political noose is tightening on the global fossil fuel industry. It is a fair bet that world leaders will agree this year to impose a draconian “tax” on carbon emissions that entirely changes the financial calculus for coal, oil, and gas, and may ultimately devalue much of their asset base to zero. The IMF has let off the first thunder-clap. An astonishing report – blandly titled “How Large Are Global Energy Subsidies” – alleges that the fossil nexus enjoys hidden support worth 6.5pc of world GDP. This will amount to $5.7 trillion in 2015, mostly due to environmental costs and damage to health, and mostly stemming from coal. The World Health Organisation – also on cue – has sharply revised up its estimates of early deaths from fine particulates and sulphur dioxide from coal plants.

The killer point is that this architecture of subsidy is a “drag on economic growth” as well as being a transfer from poor to rich. It pushes up tax rates and crowds out more productive investment. The world would be richer – and more dynamic – if the burning of fossils was priced properly. This is a deeply-threatening line of attack for those accustomed to arguing that solar or wind are a prohibitive luxury, while coal, oil, and gas remain the only realistic way to power the world economy. The annual subsidy bill for renewables is just $77bn, trivial by comparison. The British electricity group SSE is already adapting to the new mood. It will close its Ferrybridge coal-powered plant next year, citing the emerging political consensus that coal “has a limited role in the future”.

The IMF bases its analysis on the work Arthur Pigou, the early 20th Century economist who advocated taxes to ensure to stop investors keeping all the profit while dumping bad side-effects on the rest of society. The Fund has set off a storm of protest. Subsidies are not quite the same as costs. Oil veterans retort that they have been paying punitive taxes into the common welfare pool for a long time. But whether or not you agree with the IMF’s forensic accounting the publication of such claims by the world’s premier financial body is itself a striking fact. The IMF is political to its fingertips. It rarely deviates far from the thinking of the US Treasury.

It is becoming clearer last year’s sweeping deal on climate change between the US and China was an historical inflexion point, the beginning of the end for a century of fossil dominance. At a single stroke it defused the ‘North-South’ conflict that has bedevilled climate policy and that caused the collapse of the Copenhagen talks in 2009. Todd Stern, the chief US climate negotiator, said the chemistry is radically different today as sherpas prepare for the COPS 21 summit in Paris this December. “The two 800-pound gorillas are working together,” he said.

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Glut.

The Tanker Market Is Sending a Big Warning to Oil Bulls (Bloomberg)

Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat. A sudden surge in demand for supertankers drove benchmark charter rates 57% higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate. OPEC is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced.

The world is producing about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs “Supply of oil continues to build,” said Paddy Rodgers of Euronav, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,” he wrote in an e-mail May 19. Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

OPEC’s 12 members have will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, Roy Mason, founder of Oil Movements, monitoring the flows, said by e-mail Wednesday. Iraq, the group’s second-largest producer, plans to boost exports to a record 3.75 million barrels a day next month, according to shipping programs. Spare tanker capacity in the Middle East has seldom been tighter. The combined excess of ships competing for the region’s exports stood at 6% last week, the lowest for the time of year in Bloomberg surveys of shipbrokers that started in 2009. While that expanded to 12% this week, the monthly average was still the lowest on record for May.

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Expect many, and bigger, swings.

China Stocks Plunge 6.5%, Worst Selloff In 4 Months (CNBC)

It was a sea of red in China, with the key Shanghai Composite ending down 6.5% at a near one-week low, marking its biggest one-day loss since January 19 and breaking an eight-session winning streak. The CSI 300 index of the largest listed companies in Shanghai and Shenzhen tumbled 6.7%, while the start-up board ChiNext sank 5.4%. News that more Chinese brokerages are tightening margin lending rules seem to be the main cause of concern among retail investors, experts say. According to IG market strategist Bernard Aw, Guosen Securities increased the margin requirement for 908 counters while Southwest Securities reduced the amount of margin financing that traders can receive using collateral.

Separately, the Shanghai Securities News also reported that regulators have recently urged banks to submit data regarding money flows into the stock market, according to Reuters. Meanwhile, Hong Kong shares tracked their mainland peers to recede more than 2%, hitting a two-week low. Shares of Hong Kong-listed Evergrande Real Estate Group inched up 0.1% after announcing plans to raise around $600 million in a Hong Kong share offering. Sunac China Holdings plunged nearly 6% following news that it is terminating a takeover deal for troubled Chinese developer Kaisa.

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“Once it’s government policy, you better pay attention.”

Yen Drops to 12-Year Low as Yellen Builds Case for Fed Rate Rise (Bloomberg)

The yen fell to a 12-year low versus the dollar as the Federal Reserve prepares to raise interest rates, sharpening the contrast with the Bank of Japan’s unprecedented monetary stimulus. Japan’s currency led declines among 16 major peers this week as signs of U.S. economy strengthening revived the greenback’s rally. The yen’s 30% drop since 2012 is driving record profits at Japan’s biggest companies, helping the nation’s stocks toward their longest rally since 1988. BOJ Governor Haruhiko Kuroda repeated this week that he’ll adjust monetary policy if needed to meet his inflation target.

“The dollar will appreciate relative to the yen because Japanese government policy is to depreciate the yen,” Daniel Fuss at Loomis Sayles said in an interview in Tokyo Wednesday. “Once it’s government policy, you better pay attention.” The Japanese currency has depreciated by 2.1% versus the greenback since May 21, the day before Fed Chair Janet Yellen said she expects to raise interest rates this year for the first time since 2006. Until last week, the yen had been trading in a range of just two yen around 120 per dollar this quarter. The yen’s weakness came as the BOJ pursued policies including unprecedented debt purchases, seeking to revive an economy that spent more than a decade battling deflation.

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The fine print: the original Guardian headline is: “US to urge Greece to end brinkmanship with creditors at G7 meeting”, accusing Greece of brinkmanship. But that’s not what Lew said, even in the article.

US To Urge Greece, Creditors To End Brinkmanship At G7 Meeting (Guardian)

The US Treasury secretary has said he will use the G7 finance ministers’ meeting to press Greece and its European creditors to end their brinkmanship and forge a rescue deal. With the Syriza-led coalition scrambling to secure an agreement, which will release the final €7.2bn (£5.1bn) tranche of bailout cash and prevent it defaulting on a looming payment to the International Monetary Fund (IMF), Jack Lew urged both sides in the ongoing Greek debt crisis to “treat every deadline as the last”. Washington has looked on with varying degrees of frustration and alarm throughout the long-running saga, which has seen Greece bailed out twice by a total of €240bn.

On a day when share prices soared on rumours of a breakthrough in the debt talks, before German officials scotched talk of “progress”, Lew warned both sides against complacency. Speaking to students at the London School of Economics before flying to Dresden for the G7 summit, which will take place on Thursday and Friday, he said: “No one should have a false sense of confidence that they know what the result of a crisis in Greece would be.” He stressed that he believed all parties were negotiating in good faith, with neither deliberately aiming at a Greek default. However, Lew said he feared an “accident”, with the high-stakes negotiations ending in crisis. “It is profoundly in the interests of the US and European economies for the accident to be avoided,” Lew said, speaking to students at the London School of Economics. “Brinksmanship is a dangerous thing”.

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Dangerous. The troika could stop this, but won’t.

Greek Bank Losses Show Predicament Amid Record Deposit Outflows (Bloomberg)

Greek banks, forced into a central bank liquidity lifeline, are poised to report sustained losses as they grapple with record deposit outflows and an economy that plunged into double-dip recession. National Bank of Greece, the country’s biggest lender by assets, and Alpha Bank report first-quarter earnings Thursday. Piraeus Bank on Wednesday said its first-quarter loss was €69 million, as deposits shrank by 15% to €46.5 billion, with a further €1.9 billion of private deposit outflows through mid-May. “We expect the Greek banks to remain loss-making this quarter” on more expensive funding from the ECB and higher provisions for souring loans, Euroxx Securities analyst Maria Kanellopoulou said.

The prolonged uncertainty on Greece’s support program “will inevitably weigh on banks’ asset quality, with a fresh rise in new non-performing loans.” Greek lenders have lost access to capital markets and the ECB’s normal financing operations amid a standoff between the country’s anti-austerity coalition and its creditors over the terms of the current bailout. Lenders rely on more than €80 billion of Emergency Liquidity Assistance extended by the Bank of Greece to stay afloat, a more expensive source of funding, while they are forced to participate in liquidity-draining auctions of government treasury bills rather than let the country default.

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“Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.”

Athens, Creditors Offer Conflicting Views On Negotiations (Kathimerini)

Prime Minister Alexis Tsipras said Wednesday that a deal with creditors was “close” and government officials said an agreement was being drafted but representatives of the country’s creditors made it quite clear that they do not share such optimism. In comments after a meeting at the Finance Ministry, Tsipras said a deal with creditors was “close” and that “very soon we will be able to present more details.” He stressed the need for “calm and determination,” noting that Greece would come under additional pressure in the final stretch of negotiations. He also referred to “conflicting views between institutions” and to “countries with different approaches.” Tsipras added that there is “absolutely no risk to salaries and pensions, nor to bank deposits.”

According to sources, Tsipras was advised to make the statement by aides fearing that jitters were creeping back into the markets and could prompt a new wave of deposit outflows. Tsipras chose to make the statement flanked by Finance Minister Yanis Varoufakis to underline the government’s backing for the latter, who has come under fire over his confusing statements about the content of a potential deal. Earlier in the day, the ECB decided not to raise the ceiling on emergency liquidity to Greece. A Greek government official commented that the Bank of Greece had not requested an increase to emergency liquidity as the current ceiling of €80.2 billion is regarded as adequate “following a stabilization of deposit outflows.”

In an interview with Die Zeit on Wednesday, German Finance Minister Wolfgang Schaeuble said it was down to Greece to decide on whether to introduce capital controls. He defended the decision by Greece’s creditors to link loans to further reforms, despite the country’s tightening liquidity problems. “That is the philosophy of the rescue program. The new government is saying: we want to keep the euro but we don’t want the program any more. That doesn’t fit together,” he said. Earlier, on a stopover in London on his way to a meeting of Group of Seven finance ministers in Dresden, US Treasury Secretary Jack Lew called on Greece’s creditors “show enough flexibility so if the Greeks are prepared to take the kind of steps they need to take, they find a pathway to resolving this without there being an unnecessary crisis.”

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It’s easy to forget that all Syriza has been able and allowed to do so far is to negotiate with creditors, and that everything else has been forced onto the backburner.

Romantic Notions Meet Reality (Alexis Papachelas)

Before the elections, there was a considerable number of people who totally disagreed with the ideas and program put forward by SYRIZA, but they expected that the leftist party would, at least, provide a breath of fresh air as it climbed to power. They believed that SYRIZA would do away with the highly partisan tactics of its socialist and conservative predecessors and move on to adopt more meritocratic practices. They expected that SYRIZA would install young, independent people in key government posts, making use of the best talents that the country has to offer. They hoped that SYRIZA officials would man the state apparatus after poring over the CVs of thousands of job-seekers in the private sector. And they anticipated a growth-oriented strategy that would enable people to try their luck without running into unnecessary or artificial obstacles, and without having to pay bribes here and there.

It was only natural that a large section of voters would expect all that. Because, regretably, and despite the crisis, the old political system failed to change the way things work in this country. Unfortunately, the expectations of all those voters with romantic notions of what to expect have not been fulfilled. The state mechanism has mostly been manned by friends and political cronies of the ruling party. Key posts have been entrusted to well-connected representatives of the good old system. The way SYRIZA has dealt with the so-called oligarchs seems very selective. It does not seem to have allowed the domestic institutions to carry out their work in a fair and transparent manner. In fact, it smacks of an attempt to install a new oligarchy – only, this time, one that is pro-SYRIZA.

So, no breath of fresh air. The question, of course, is why? The answer is that SYRIZA has strong ties with groups that depend exclusively on the state for their survival. The healthy private sector which does not rely on the generosity of the state for its well-being has no political representation in Alexis Tsipras’s party. The truth is, even the country’s conservative parties have failed in that respect. It’s hard to say how long SYRIZA will manage to stay in power. Any prediction would be risky these days. That said, those who looked forward to some creative big bang, as it were, spawned by SYRIZA’s victory are beginning to feel disappointed. That does not mean to say that the party will not be able to consolidate itself as the dominant political player. It does mean, however, that the dreamers will have to wait. Or move to a more cynical, same-old view of things.

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A moment of clarity from Ye Olde Paul.

Grexit and the Morning After (Krugman)

We just had another electoral earthquake in the euro area: Podemos-backed candidates have won local elections in Madrid and Barcelona. And I hope that the IFKAT — the institutions formerly known as the troika — are paying attention. The essence of the Greek situation is that the actual parameters of a short-run deal are clear and unavoidable: Greece can’t run a primary budget deficit, because nobody will lend it new money, and it won’t (and basically can’t) run a large primary surplus, because you can’t squeeze even more blood from that stone. So you would think that an agreement for Greece to run a modest primary surplus over the next few years would be easy to reach — that is what will happen, so why not make it official?

But now the IMF is playing bad cop, declaring that it cannot release funds until Syriza toes the line on pensions and labor market reform. The latter is dubious economics — the IMF’s own research doesn’t support enthusiasm about structural reforms, especially in the labor market. The former probably recognizes a real problem — Greece probably can’t deliver what it has promised pensioners — but why should this be an issue over and above the general question of the primary surplus. What I would urge everyone to do is ask what happens if Greece is in fact pushed out of the euro. (Yes, Grexit — ugly word, but we’re stuck with it.) It would surely be ugly in Greece, at least at first.

Right now the core euro countries believe that the rest of the euro area can handle it, which might be true. Bear in mind, however, that the supposed firewall of ECB support has never actually been tested. If markets lose faith and the time for ECB purchases of Spanish or Italian bonds arises, will it really happen? But the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed. Suppose that a greatly devalued new drachma brings a flood of British beer-drinkers to the Ionian Sea, and Greece starts to recover. This would greatly encourage challengers to austerity and internal devaluation elsewhere.

Think about it. Just the other day the Very Serious Europeans were hailing Spain as a great success story, a vindication of the whole program. Evidently the Spanish people don’t agree. And if the anti-establishment forces have a recovering Greece to point to, the discrediting of the establishment will accelerate. One conclusion, I guess, is that Germany should try to sabotage Greece post-exit. But I hope that will be considered unacceptable. So think about it, IFKATs: are you really sure you want to start going down this road?

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Has been for years. The plunge will be historic.

Australia Property Boom Is On Borrowed Time (Business Spectator)

The stage is set for Australian property to finally feel the pain so evident across other sectors of the economy. A series of headwinds – combined with tighter lending standards – ensures that the investor property boom is now on borrowed time. Yesterday, Westpac decided to cut the lucrative interest rate discounts offered to new housing investors – following similar action from its major rivals last week – as regulatory pressure from the Australian Prudential Regulation Authority begins to take effect. The implication of this shift in regulatory policy will be modest at first but could soon snowball into a much weaker period for Australian property. Rarely can a housing downturn be so easily identified.

Nevertheless, right now, prices continue to rise at a rapid pace in Sydney and to a lesser extent Melbourne. By comparison, conditions in the other capitals remain more modest. Real dwelling prices – that is prices adjusted for inflation – have increased by 30% since the beginning of 2013 in Sydney and by 15% in Melbourne. In the other capitals, price growth has better reflected income growth. But the tide is clearly turning and the outlook for the property sector needs to be viewed against the broader economic backdrop. The Reserve Bank, for example, was recently forced to cut their economic outlook for the fourth time in the past five quarters. We are currently stuck in the middle of an ‘income recession’ due to the sharp fall in commodity prices.

In the next few years, higher taxes will hit the market at the very top – since high income earners obviously purchase expensive housing – but also towards the bottom – since investors often favour cheap rental properties. Alternatively, higher taxes could make negative gearing more attractive. Meanwhile, the Federal Government has taken clear and decisive steps to reign in foreign investment in established property, while maintaining the existing arrangements for new construction. We also cannot ignore the possibility that the Western Australia economic bust has significant spill over effects for the broader economy and financial system.

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But will it stick? Does RICO apply to FIFA?

US Treats FIFA Like the Mafia (Bloomberg)

It wasn’t exactly extraordinary rendition. But when Swiss police arrested seven officials of FIFA, the international football federation, for extradition to the U.S., there were some echoes of the secret terrorism arrests. Soccer is a global game, and it matters more to almost everyone than to Americans. So why is the U.S. acting as the international sheriff and grabbing up non-U.S. citizens to try them domestically for corrupting the sport worldwide? And more to the point, why is this legal? It turns out the legal basis for the FIFA prosecutions isn’t all that simple or straightforward – and therein lies a tale of politics and sports. The prosecutions are being brought under RICO, the Racketeer Influenced and Corrupt Organizations Act of 1970, which was designed to prosecute crime syndicates that had taken over otherwise lawful organizations.

Roughly speaking, the law works by allowing the government to prove that a defendant participated in a criminal organization and also committed at least two criminal acts under other specified laws, including bribery and wire fraud. If the government can prove that, the defendant is guilty of racketeering, and qualifies for stiff sentences, the seizure of assets and potential civil-liability lawsuits. The first and most obvious problem raised by the FIFA arrests is whether the RICO law applies outside the U.S., or “extraterritorially” as lawyers like to say. Generally, as the Supreme Court has recently emphasized, laws passed by Congress don’t apply outside the U.S. unless Congress affirmatively says so. RICO on its face says nothing about applying beyond U.S. borders. So you’d think that RICO can’t reach conduct that occurred abroad, and much of the alleged FIFA criminal conduct appears to have done so.

But in 2014, the U.S. Court of Appeals for the Second Circuit held that RICO could apply extraterritorially – if and only if the separate criminal acts required by the law, known as “predicate acts,” violated statutes that themselves apply outside U.S. borders. The court gave as an example the law that criminalizes killing an American national outside the U.S. That law clearly applies abroad, the court pointed out. And it may function to define one of the predicate offenses under RICO. Thus, RICO can apply abroad. To convict the FIFA defendants, therefore, the Department of Justice will have to prove either that they committed crimes within the U.S. or that they committed predicate crimes covered by RICO that reach beyond U.S. borders.

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Bet you didn’t know.

You’ll Be Sorry When The Robot McJournalists Take Over (Irish Times)

If you consume much of your daily news diet online, you’re probably already acquainted with the work of “robot journalists”, you just don’t know it yet. We’re not talking here about Wall-E running around with a reporter’s notebook chasing stories on Amal Clooney (well, not yet), but about the algorithms used by organisations such as Forbes, AP and Fortune to produce millions of stories AP relies on a content generation package called Wordsmith to produce some of its quarterly-earnings business stories and will soon be using it for sports coverage too. You’ve never heard of Wordsmith but you’re probably familiar with its work: it produced 300 million stories last year and is aiming for one billion this year. A rival company, Narrative Science, provides content to Forbes, Fortune and others.

“We sort of flip the traditional content creation model on its head,” Robbie Allen, creator of Wordsmith told the New York Times. “Instead of one story with a million page views, we’ll have a million stories with one page view each.” The cheerleaders for this new technology – who includes some journalists (New York magazine declared that “the stories that today’s robots can write are, frankly, the kinds of stories that humans hate writing anyway”) – claim that it will free journalists up to do more meaningful pieces, while algorithms churn out rewrites of press releases, mine longer texts for insights, or produce entirely personalised packages of content tailored for individuals. That’s nonsense. As always, “freeing people up” invariably means “liberating them of their jobs”.

But leaving aside the prospect of fewer people in employment, the notion that algorithms may end up taking over even the quotidian aspects of content production is depressing, and not just for journalists. [..] it’s you, the reader, who will suffer. Algorithms may be good at crunching numbers and putting them in some kind of context, but journalists are good at noticing things no one else has. They’re good at asking annoying questions. They’re nosy and persistent and willing to challenge authority to dig out a story. They’re good at provoking irritation, devastation, laughter or controversy. Wildly efficient robot journalists may offer hope to an industry beset by falling advertising rates and disappearing readers. The world will have fewer human journalists as a result, which may not be altogether a bad thing. But the question is: does it really need a billion more pieces of McJournalism?

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Go to site to watch video.

Julian Assange: TPP Isn’t About Trade, But Corporate Control (Democracy Now)

As negotiations continue, WikiLeaks has published leaked chapters of the secret Trans-Pacific Partnership — a global trade deal between the United States and 11 other countries. The TPP would cover 40% of the global economy, but details have been concealed from the public. A recently disclosed “Investment Chapter” highlights the intent of U.S.-led negotiators to create a tribunal where corporations can sue governments if their laws interfere with a company’s claimed future profits. WikiLeaks founder Julian Assange warns the plan could chill the adoption of health and environmental regulations.

Julian Assange: ..it’s the largest-ever international economic treaty that has ever been negotiated, very considerably larger than NAFTA. It is mostly not about trade. Only five of the 29 chapters are about traditional trade. The others are about regulating the Internet and what Internet—Internet service providers have to collect information. They have to hand it over to companies under certain circumstances. It’s about regulating labor, what labor conditions can be applied, regulating, whether you can favor local industry, regulating the hospital healthcare system, privatization of hospitals. So, essentially, every aspect of the modern economy, even banking services, are in the TPP.

And so, that is erecting and embedding new, ultramodern neoliberal structure in U.S. law and in the laws of the other countries that are participating, and is putting it in a treaty form. And by putting it in a treaty form, that means—with 14 countries involved, means it’s very, very hard to overturn. So if there’s a desire, democratic desire, in the United States to go down a different path—for example, to introduce more public transport—then you can’t easily change the TPP treaty, because you have to go back and get agreement of the other nations involved. Now, looking at that example, what if the government or a state government decides it wants to build a hospital somewhere, and there’s a private hospital, has been erected nearby?

Well, the TPP gives the constructor of the private hospital the right to sue the government over the expected—the loss in expected future profits. This is expected future profits. This is not an actual loss that has been sustained, where there’s desire to be compensated; this is a claim about the future. And we know from similar instruments where governments can be sued over free trade treaties that that is used to construct a chilling effect on environmental and health regulation law. For example, Togo, Australia, Uruguay are all being sued by tobacco companies, Philip Morris the leading one, to prevent them from introducing health warnings on the cigarette packets.

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But that’s against our life philosophy?!

The Cheapest Way To Help the Homeless: Give Them Homes (Mother Jones)

Santa Clara County is perhaps best known as the home of Silicon Valley. It also has one of the country’s highest rates of homelessness and its third largest chronically homeless population. An extensive new study of the county’s homelessness crisis, published yesterday, finds that the most cost-effective way to address the problem is to provide people with homes. Those findings echo a similar approach that’s been successfully adopted in Utah, the subject of Mother Jones’ April/May cover story. The study was conducted by county officials who teamed up with Economic Roundtable, a nonprofit public policy research organization, and Destination: Home, an agency that works to house the homeless.

Researchers dug into 25 million records to create a detailed picture of the demographics and needs of the more than 104,000 people who were homeless in the county between 2007 and 2012. They found that much of the public costs of homelessness stemmed from a small segment of this population who were persistently homeless, around 2,800 people. Close to half of all county expenditures were spent on just five% of the homeless population, who came into frequent contact with police, hospitals, and other service agencies, racking up an average of $100,000 in costs per person annually. Those costs quickly add up—overall, Santa Clara communities spend $520 million in homeless services every year.

The study also highlights solutions. The researchers examined Destination: Home’s program, which has housed more than 800 people in the past five years. The study looked at more than 400 of these housing recipients, a fifth of whom were part of the most expensive cohort. Before receiving housing, they each averaged nearly $62,500 in public costs annually. Housing them cost less than $20,000 per person—an annual savings of more than $42,000.

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Fifty shades of dry.

US Droughts Set To Be Worst In 1000 Years (OnEarth)

The National Oceanic and Atmospheric Administration’s seasonal outlook is out, and this summer is going to be a dry one. The massive drought consuming the West will likely continue and even intensify in most places (sorry Nevada, that forecast covers the entire Silver State.) But it won’t be alone: The upper Midwest and Northeast will be parched, too. As for the lower Midwest, a few states could get some relief, but…I wouldn’t let those green lawns go to your head. Scientific models predict that as the climate warms, we’ll see more droughts, and according to the video below, they’ll also last longer than in the past. So Americans, start swinging your partner round and round, shaking your moneymaker, or electric-sliding (if you must)—because we may need to come up with a national rain dance.

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History revised: no asteroid.

Fossil Fuel Burning Nearly Wiped Out Life On Earth 250m Years Ago (Monbiot)

In the media, if not scientific literature, global catastrophes have long been associated with asteroid strikes. But as the dating of rocks has improved, the links have vanished. Even the famous meteorite impact at Chicxulub in Mexico, widely blamed for the destruction of the dinosaurs, was out of sync by more than 100,000 years. The story that emerges repeatedly from the fossil record is mass extinction caused by three deadly impacts, occurring simultaneously: global warming, the acidification of the oceans and the loss of oxygen from seawater. All these effects are caused by large amounts of carbon dioxide entering the atmosphere. When seawater absorbs CO2, its acidity increases. As temperatures rise, circulation in the oceans stalls, preventing oxygen from reaching the depths.

The great outgassings of the past were caused by volcanic activity that were orders of magnitude greater than the eruptions we sometimes witness today. The dinosaurs appear to have been wiped out by the formation of the Deccan Traps in India: an outpouring on such a scale that one river of lava flowed for 1,500km. But that event was dwarfed by a far greater one, 190m years earlier, that wiped out 96% of marine life as well as most of the species on land. What was the cause? It now appears that it might have been the burning of fossil fuel. Before I explainthis extraordinary contention, it’s worth taking a moment to consider what mass extinction means.

This catastrophe, at the end of the Permian period about 252m years ago, wiped out not just species within the world’s ecosystems but the ecosystems themselves. Forests and coral reefs vanished from the fossil record for some 10 million years. When, eventually, they were reconstituted, it was with a different collection of species which evolved to fill the ecological vacuum. Much of the world’s surface was reduced to bare rubble. Were such an extinction to take place today, it would be likely to eliminate almost all the living systems that sustain us. When plants are stripped from the land, the soil soon follows.

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Blackberry founder decides Artic ownership?

A 19th Century Shipwreck Could Give Canada Control of the Arctic (Bloomberg)

Jim Balsillie, the former co-CEO of Research In Motion, the company behind the BlackBerry, believes rituals are scenes we perform so our lives might take the shape we need them to take. It’s a symbolic act, and symbols matter to him. Directly beneath the hole in the ice, visible on the seafloor, is the biggest symbol of all: the HMS Erebus, one of two British navy ships lost during Sir John Franklin’s doomed 1845 quest to find the Northwest Passage through the Arctic. The whereabouts of the Erebus frustrated hundreds of searchers for more than 150 years, costing several their lives. Balsillie helped finance and coordinate the successful hunt for the ship, rediscovered in September 2014.

On a personal level, the search for the Erebus was a way for him to take more control over his life after his unceremonious exit from RIM, which left him angry, drained, and disoriented. But it’s much more than an archeological artifact. It represents an opportunity for Canada to take more control of the Arctic. Exploring the Erebus, Balsillie hopes, will draw the collective attention of Canadians northward to a neglected region with billions in potential resources. And by conducting a complex operation in the waters, Canadian military and civilian officials say they are demonstrating their sovereignty over the Northwest Passage. The Queen Maud Gulf, where the Erebus sits, is part of the southern branch of the Northwest Passage.

The route is a fabled link between the Atlantic and Pacific that for centuries proved a dangerous magnet for seekers of knowledge, fortune, and glory. Since 2007, as a result of climate change, the passage has become navigable by smaller ships for a couple of months during most summers. An open route can cut thousands of miles off of trips between the west coast of the Americas and Europe. The two alternative routes are the Panama Canal and the Northern Sea Route, which runs from the Bering Strait and over the Russian Arctic. In 2013 the MS Nordic Orion, a Norwegian freighter, made the first cargo transit of the Northwest Passage. That trip, which carried coal from Vancouver to Norway, hasn’t been repeated. But it raised an unanswered question in maritime law: Who really controls the waters of the route and the rest of Canada’s Arctic archipelago, which consists of more than 30,000 islands?

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She’s a beauty.

The Tiny House Powered Only by Wind and Sun (Atlantic)

In theory, I support the tiny-house lifestyle. I would enjoy the opportunity to live on a lonesome plain somewhere, with only the stars and many insects for company. I’m sure I could find a way to de-clutter my life such that the floor of my room/house was not always covered by 100 pairs of yoga pants. I would emerge from the experience a stronger, more reflective person who, if tiny house documentaries are to be believed, is also an expert in knitting and roof repair. The problem would lie in the construction of said house. If I were in charge of hooking up my own water lines, for example, I would be dead of dysentery by now.

Enter the Ecocapsule, a new kind of micro-house powered entirely by solar and wind energy. The capsule, made by a Slovakian company called Nice Architects, comes pre-made and ready to house two adults. Its kitchenette spouts running water, the toilet flushes, and the shower flows hot. It is 14.6 feet long and 7.4 feet wide. Nice Architects will start taking pre-orders in the fall of this year, and it expects to start delivering the first units in the beginning of 2016. They’re unveiling the Ecocapsule publicly for the first time this week at the Pioneers festival in Vienna. The company suggest the Ecocapsule can be used as a portable hotel, a research station, or even a charging hub for electric vehicles.

The designers, for whom English is not a first language, also write in the release that the “capsule can be used as a urban dwelling for singles in the high-rent, high-income areas like NY or Silicone valley. It can be placed on the rooftop or vacant parking lot.” (Hear that, Google employees? Enjoy dealing with your new, pod-dwelling roof squatters!) Okay, so maybe that last one is wishful thinking. But if it works as described, the capsule might just be the perfect tiny house for those who yearn to live on the edge of an ethereal cliff but don’t want to learn how to build a composting toilet.

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Dec 102014
 
 December 10, 2014  Posted by at 12:36 pm Finance Tagged with: , , , , , , , , , , ,  4 Responses »
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Marjory Collins “Crowds at Pennsylvania Station, New York” Aug 1942

China Inflation Eases To Five-Year Low (BBC)
Popping The Chinese Stock Market Mania (Zero Hedge)
Easy Credit Feeds Risky Margin Trades In Chinese Stocks (Reuters)
Why Beijing’s Troubles Could Get a Lot Worse (Barron’s)
OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (Bloomberg)
Don’t Look For Oil Glut To End Any Time Soon (CNBC)
Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (Bloomberg)
“Yes, it Was a Brutal Week for the Oil & Gas Loan Sector” (WolfStreet)
US Shale Contractors To See Net Income Cut By 25% In 2015 (Bloomberg)
This Time Is The Same: The Fed Ignores The Shale Bubble (David Stockman)
Thanksgiving Weekend Box Office Plunges 20% vs 2013 To 16-Year Low (Alhambra)
Greece Lurches Back Into Crisis Mode (Bloomberg)
Japan Threatened With Credit Rating Downgrade (CNBC)
Citigroup Sets Aside $2.7 Billion For Legal Costs (BBC)
This Is What 6 Years Of Central Bank Liquidity Injections Look Like (Zero Hedge)
Big US Banks Face Capital Requirement of 4.5% on Top of Global Minimum (BBG)
Stop Believing The Lies: America Tortured More Than ‘Some Folks’ (Guardian)
Defeat is Victory (Dmitry Orlov)
Rising Inequality ‘Significantly’ Curbs Growth (CNBC)
TTIP Divides A Continent As EU Negotiators Cross The Atlantic (Guardian)
Ebola Virus Still ‘Running Ahead Of Us’, Says WHO (BBC)

The economy allgedly grows at 7%, and official inflation is 1.4%?

China Inflation Eases To Five-Year Low (BBC)

Inflation in China eased to a five-year low in November, suggesting continued weakness in the Asian economic giant. The inflation rate fell to 1.4% in November from 1.6% in October, which is the lowest since November 2009. The reading was also below market expectations of a 1.6% rise. Producer prices, which have been entrenched in deflation, also fell more than forecast, down 2.7% from a year ago – marking a 33rd consecutive monthly decline. Economists had predicted a fall of 2.4% after drop of 2.2% in the previous month as a cooling property market led to slowing demand for industrial goods. The figures are the latest in a string of government data that showed a deeper-than-expected slowdown in the Chinese economy.

Dariusz Kowalczyk, an economist at Credit Agricole, said the data partly reflected low commodity and food prices but also confirmed softness in domestic demand. “It will likely convince policymakers to ease their policy stance further and we continue to expect a RRR (bank reserve requirement ratio) cut in the near term, most likely this month,” he told Reuters. Last month, the country’s central bank unexpectedly cut interest rates for the first time in more than two years to spur activity. In reaction to the data, Chinese shares continued their downward trend after the Shanghai Composite fell more than 5% on Tuesday.

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“On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.”

Popping The Chinese Stock Market Mania (Zero Hedge)

If you are wondering what triggered the PBOC to pull the punchbowl of leveraged collateral away from the ‘wealth-creating’ stock market exuberance in China… wonder no more. The last 2 weeks saw the biggest surge in new Chinese brokerage accounts ever, with this week alone the highest since October 2010 and January 2008 with a stunning 228,000 new accounts opened. On both prior occasions of such a maniacal surge in speculative accounts, the Shanghai Composite made a significant top and fell dramatically in the ensuing months.

How oddly dis-similar the PBOC is to the Fed!! Instead of encouraging open leveraged speculation, the central bank of China appears more risk averse, recognizing the potential medium-term disastrous consequences from such boom-bust moves (and likely has no cheer-leading CNBC channel to take care of).

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Oh boy: “Some might already be regretting taking those risks [..] Especially those who might have pledged their property to get in on the rally and offset the slide in house prices.”

Easy Credit Feeds Risky Margin Trades In Chinese Stocks (Reuters)

“High leverage, low thresholds!” the website says. “(China’s) A shares are heating up; if you don’t allocate capital now, then when?” Many, it appears, are choosing now, gorging on cheap credit to ride a wild stock market rally. The website, Jinfuzi.com, will let investors borrow up to 10 times their principal with only 2,000 yuan ($323) down in order to buy stocks and futures. The peer-to-peer lender has an easy sell; Chinese benchmark indexes have posted record-smashing trading volumes in recent weeks, with average share values up over 30% in just 12 trading days. Ordinary investors, who conduct 60-80% of China’s stock trades, charged into the market after a surprise interest rate cut by Beijing on Nov. 21, and brokerages and shadow bankers have rushed in to help them trade on margin – essentially borrowed money.

“Margin trading has clearly played a big role in the recent rally, and government is worried,” wrote Oliver Barron of NSBO in a research note on Tuesday, estimating that gross margin trading purchases accounted for 164 billion yuan ($26.5 billion) on Monday, the equivalent of 17% of total turnover on Chinese bourses. There has been a steady relaxation of restrictions on margin trading in the last two years, and while in good times it allows investors to make a lot of money with only a small amount of their own cash, it also carries big risks when the market falls.

Some might already be regretting taking those risks after the Shanghai Composite Index lost over 5% on Tuesday, its largest single-day drop in five years. Especially those who might have pledged their property to get in on the rally and offset the slide in house prices. “We provide our customers with service to borrow money with their property as collateral,” said Mr. Yu, president of Qianteng Asset Management Company in Hangzhou. “We have plenty of funds on hand, which makes it easy for our customers to get money ASAP once they sign the contract.”

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“In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior.”

Why Beijing’s Troubles Could Get a Lot Worse (Barron’s)

Few foreigners know China as intimately as Anne Stevenson-Yang does. She has spent the bulk of her professional life there since first arriving in 1985, working as a journalist, magazine publisher, and software executive, with stints in between heading up the U.S. Information Technology office and the China operations of the U.S.-China Business Council. She’s now research director of J Capital, an outfit that works for foreign investors in China doing fundamental research on local companies and tracking macroeconomic developments.

Barron’s: Investors seem far more concerned about Europe’s sinking into economic despond than slowing growth in China. Are they whistling past the graveyard?

Stevenson-Yang: I think so. China, for all its talk about economic reform, is in big trouble. The old model of relying on export growth and heavy investment to power the economy isn’t working anymore. Sure, the nation has been hugely successful over recent decades in providing its people with literacy, a decent life, basic health care, shelter, and safe cities. But starting in 2008, China sought to counter global recession with huge amounts of ill-advised investment in redundant industrial capacity and vanity infrastructure projects—you know, airports with no commercial flights, highways to nowhere, and stadiums with no teams. The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt. The recent lowering of benchmark deposit rates by the People’s Bank of China won’t accomplish much because it won’t offer more income to households. It also gave China’s biggest banks the discretion to raise their deposit rates back up to old levels, which would give them a competitive advantage

Barron’s: How bad can the situation be when the Chinese economy grew by 7.3% in the latest quarter?

Stevenson-Yang: People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross- domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too. I put much stock in estimates by various economists, including some at the Conference Board, that actual Chinese GDP is probably a third lower than is officially reported. And as for the recent International Monetary Fund report calling China the world’s biggest economy on a purchasing-power-parity basis, how silly was that? China is a cheap place to live if one is willing to eat rice, cabbage, and pork, but it’s expensive as all get out once you factor in the cost of decent housing, a car, and health care.

I’d be shocked if China is currently growing at a rate above, say, 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy. Think about it: Property sales are in decline, steel production is falling, commercial long-and short-haul vehicle sales are continuing to implode, and much of the growth in GDP is coming from huge rises in inventories across the economy. We track the 400 Chinese consumer companies listed on the Shanghai and Shenzhen stock markets, and in the third quarter, their gross revenues fell 4% from a year ago. This is hardly a vibrant economy.

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Demand is way down.

OPEC Says 2015 Demand for Its Crude Will Be Weakest in 12 Years (Bloomberg)

OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging U.S. shale supplies and reduced estimates for global consumption. The Organization of Petroleum Exporting Countries lowered its projection for 2015 by about 300,000 barrels a day, to 28.9 million a day. That’s about 1.15 million a day less than the group’s 12 members pumped last month, and the 30-million barrel target they reaffirmed at a meeting in Vienna on Nov. 27. The impact of this year’s 40% price collapse on supply and demand remains unclear, OPEC said. “The downward revision reflects the upward adjustment of non-OPEC supply as well as the downward revision in global demand,” the group’s Vienna-based research department said in its monthly oil market report.

Brent crude futures collapsed to a five-year low of $65.29 a barrel in London yesterday amid speculation that OPEC’s decision to maintain output levels despite swelling North American supplies will intensify the glut in global oil markets. Demand for OPEC’s crude will slump to 28.92 million barrels a day next year, according to the report. That’s below the 28.93 million required in 2009, and the lowest since the 27.05 million a day level needed in 2003, the group’s data show. Output from the 12 members declined by 390,000 barrels a day in November to 30.05 million a day amid lower production in Libya, according to data from analysts and media organizations referred to in the report as ‘‘secondary sources.” Libyan output dropped last month by 248,300 barrels a day to 638,000 a day. Pumping at the Sharara oil field, the country’s biggest-producing asset, and the neighboring El Feel site, was halted after Sharara was seized by gunmen, according to the International Energy Agency.

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But OPEC will fight for market share, or rather its separate mebers will.

Don’t Look For Oil Glut To End Any Time Soon (CNBC)

The global oil glut is expected to get much bigger before it’s over, keeping pressure on oil prices well into next year. Companies like ConocoPhillips and Chevron are reducing spending on new projects, but the impact of already planned increases in U.S. production into the first half of the year is likely to keep the world well supplied before the flow of new supply starts to slow in the second half of the year. Besides shale production, U.S. Gulf of Mexico production is also expected to increase with new projects coming on line. Within a year, the projects will take U.S. Gulf production from 1.3 million barrels to roughly 1.6 million barrels a day. “It’s not like the supply reaction is instantaneous. It takes time to wind these things down,” said John Kilduff of Again Capital. “I wouldn’t expect a decrease in the rate of (production) growth until next year at the earliest.”

The U.S. Energy Information Administration on Tuesday cut its forecast for daily U.S. production by another 100,000 barrels, to 9.3 million. That follows a reduction in its forecast of 100,000 barrels per day last month. The U.S. produced 9.08 million barrels a day in the week of Nov. 28 and has been producing over 9 million barrels a day for the past month. The government’s forecast for 2015 is now below some private analysts’ assumptions that oil production can continue to grow at a higher rate of anywhere from 500,000 to more than 1 million barrels per day next year, depending on oil prices. The EIA on Monday issued a new report on U.S. oil production showing the increase in production in the three main shale plays—Bakken, Permian and Eagle Ford—is growing by more than 100,000 barrels a day in December over November, and is expected to increase at about the same rate in January.

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Discord is all that’s left at OPEC. Nobody can risk the initial losses of an output cut. And nobody trusts the others.

Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord (Bloomberg)

Brent resumed its decline as an Iranian official predicted a further slump in prices if solidarity among OPEC members falters. West Texas Intermediate in New York also erased yesterday’s gains. Futures slid as much as 1.6% in London after snapping a five-day losing streak. Crude could fall to as low as $40 a barrel amid a price war or if divisions emerge in OPEC, said an official at Iran’s oil ministry. The 12-member group, which supplies 40% of the world’s oil, may need to call an extraordinary meeting in the first quarter if the drop continues, according to Energy Aspects Ltd. Brent has collapsed 40% this year as OPEC agreed at a Nov. 27 gathering not to cut output to force a slowdown in U.S. production, which has risen to the highest level in three decades. Saudi Arabia and Iraq this month widened discounts on crude exports to their customers in Asia, bolstering speculation that group members are fighting for market share.

“With OPEC looking like a dysfunctional family, no pullback in U.S. production and a lack of geopolitical concerns, it’s all adding up to lower prices,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone today. Brent for January settlement decreased as much as $1.06 to $65.78 a barrel on the London-based ICE Futures Europe exchange and was at $66.25 at 3:12 p.m. Singapore time. The contract climbed 65 cents to $66.84 yesterday. The European benchmark crude traded at a premium of $3.12 to WTI. WTI for January delivery fell as much as $1, or 1.6%, to $62.82 a barrel in electronic trading on the New York Mercantile Exchange. It increased 77 cents to $63.82 yesterday. The volume of all futures traded was about 2% below the 100-day average.

Oil’s collapse has left the market below equilibrium, according to Mohammad Sadegh Memarian, the head of petroleum market analysis at the oil ministry in Tehran. Iran, hobbled by economic sanctions over its nuclear program, wants to raise production to 4.8 million barrels a day once the curbs are removed, he said at a conference in Dubai yesterday. OPEC pumped 30.56 million barrels a day in November, exceeding its collective target of 30 million for a sixth straight month, a Bloomberg survey of companies, producers and analysts showed. Financially strapped members such as Iran, Iraq and Venezuela may press for discussions before the group’s next scheduled meeting on June 5, predicted Amrita Sen, the chief oil market analyst at Energy Aspects.

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And more’s to come.

“Yes, it Was a Brutal Week for the Oil & Gas Loan Sector” (WolfStreet)

Yesterday, I discussed how the plunging price of oil is wreaking havoc on leveraged loans in the energy sector. These loans are issued by junk-rated corporations already burdened by a large amount of debt. Banks that originate these loans can retain them on their balance sheets or sell them in various creative ways, including by repackaging them into synthetic structured securities, called Collateralized Loan Obligations. Earlier today, I discussed how the current generation of leveraged loans in general compares to the leveraged loans issued at the cusp of the Financial Crisis. Spoiler alert: by almost every metric, they’re bigger and crappier now than they were in 2007.

So here’s a chart of S&P Capital IQ’s energy-sector leveraged-loan index for the latest week, and it was such a doozie that it caused leveraged-loan focused LCD News, a unit of S&P Capital IQ, to tweet: “Yes, it Was a Brutal Week for the Oil & Gas Loan Sector.” The average bid price of first-lien oil & gas Index loans fell to 90.35 cents on the dollar for the week, from 94.90 at the November 28 close and down from 96.77 at the end of October, S&P Capital IQ’s LeveragedLoan.com reported. And yields soared: the spread to maturity implied by the average bid jumped from Libor plus 500 basis points in August to Libor plus 600 basis points at the end of November, to Libor plus 731 basis points at the end of the latest week. The US dollar Libor rate is about 0.1%, so yields jumped from 5.1% in August to 7.4% in the latest week. An exponential increase:

Note how offshore drillers (blue line) got hammered the most, though they had the lowest yields of the bunch for most of the year. Their spreads nearly doubled from 400 basis points over Libor in March to nearly 800 basis points over Libor last week. That’s a move from about 4% in March to nearly 8% now, and a big part of it within a single month. It’s really brutal out there. In the oil and gas sector, revenues are already plunging. Earnings will get hit. Earnings estimates are crashing at a rate not seen since crisis year 2009. Liquidity is drying up. And stocks got eviscerated. It’s tough out there.

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And that’s just for the four biggest ones.

US Shale Contractors To See Net Income Cut By 25% In 2015 (Bloomberg)

Oilfield contractors hired to drill wells and fracture rock to raise crude and natural gas to the surface will have to lower prices by as much as 20% to help keep their cash-strapped customers working. Ultimately, that could carve out more than $3 billion from the 2015 earnings outlined by analysts for the world’s four biggest oil-service companies – Schlumberger, Halliburton, Baker Hughes and Weatherford International. The potential losses loom just as the service providers were looking ahead to higher rates after a glut in pressure-pumping gear dragged prices down in past years. Now, crude oil prices that have fallen more than 40% since June are squeezing them once again. As they look for ways to cut costs, oil producers will be pushing for discounts wherever they can find them.

“They’re already going to confront significant cash-flow pressures with the decline in oil prices,” Bill Herbert, an analyst at Simmons in Houston, said in a phone interview. “They’re going to need all the help they can get.” The price cuts may begin to take shape as early as this month, Herbert said. Hydraulic fracturing, in which high-pressure streams of water, sand and chemicals are used to crack rock underground to allow oil and gas to flow, may see the biggest chunk of pricing discounts because it’s the largest part of the cost of drilling a new well. Earnings estimates for service companies that have been cut since last week will continue to be revised lower as analysts don’t usually reduce their forecasts in one go when the outlook for an industry worsens, James Wicklund, an analyst at Credit Suisse in Dallas, said by phone. “We’ve just gotten started.”

Lower prices and lost business will probably reduce about $14.5 billion of net income estimated for the big four service companies in 2015 by as much as 25%, or about $3.6 billion, Wicklund said. Jeff Tillery, an analyst at Tudor Pickering Holt & Co. predicts roughly the same. After two years of declining service prices, providers were finally able to stop the slide this year and start pushing rates back up to help compensate for their own rising costs for fracking materials such as sand. Dave Lesar, chief executive officer of Halliburton, the top provider of fracking work, declared less than two months ago that better days were ahead. “This quarter things are clearly accelerating out of that turn and we do not see momentum slowing any time soon,” Lesar told analysts and investors Oct. 20 on a conference call.

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The Fed has helped blow the bubble.

This Time Is The Same: The Fed Ignores The Shale Bubble (David Stockman)

We are now far advanced into the third central bank generated bubble of the last two decades, but our monetary politburo has taken no notice whatsoever of its self-evident leading wave. Namely, the massive malinvestments and debt mania in the shale patch. Call them monetary bourbons. It is no exaggeration to say that inhabitants of the Eccles Building deserve every single word of Talleyrand’s famous epithet: “They learned nothing and forgot nothing.” To wit, during the last cycle they claimed to be fostering the Great Moderation and permanent full employment prosperity. It didn’t work. When the housing and credit bubble blew-up, it washed out all the phony gains from the Greenspan/Bernanke printing spree. By the time the liquidation was finished in early 2010, there were 2 million fewer payroll jobs than there had been at the turn of the century.

Never mind. The Fed simply doubled-down. Instead of expanding its balance sheet by 50%, as happened during the eight years between 2000 and 2008, it went into monetary warp drive, ballooning its made-from-thin-air liabilities by 5X in only six years. Yet even after Friday’s ballyhooed jobs report there were three million fewer full-time breadwinner jobs in November 2014 than there were in the early 2000s. That’s right. Two cycles of lunatic monetary expansion and what they have to show for it is two short-lived bursts of part-time job creation that vanish when the underlying financial bubble bursts. So, yes, our monetary central planners forget nothing. It doesn’t matter what the actual results have been.

Like the original Bourbons, the small posse of unelected academics and policy apparatchiks which control the nation’s all-powerful central bank most surely believe they have a divine right to run the printing presses as they see fit—even if it accomplishes nothing for the 99% of Americans who don’t have family offices or tickets to the hedge fund casino. Still, you would think that the purported “labor economist” who is now chair person of the joint would be at least troubled by the chart below. Even liberals like Yellen usually do acknowledge that that the chief virtue of the state is that it purportedly generates “public goods” that contribute to societal welfare—-not that it is a fount of productivity and new wealth generation. For that you need private enterprise and business driven efficiency.

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20% is a big number.

Thanksgiving Weekend Box Office Plunges 20% vs 2013 To 16-Year Low (Alhambra)

The recession-like “stimulus” of recent vintage doesn’t seem to have affected the movie business. The Thanksgiving weekend is typically devoid of tremendous or blockbuster new titles for obvious reasons. However, just like people failed to show up at the mall they also skipped the theater. As I have noted before, this is not because movies are mostly narrowly-tailored junk, as they are, but that 2014 has seen a conspicuous drop in theater revenue despite offering largely the same junk as last year. The weekend following Thanksgiving 2014 was 20% below 2013. But we also have an almost direct comparison of “blockbuster” activity as the second installment of the Hunger Games is nearly 25% behind the first in the same number of days. Having taken in about $257 million (which is still quite good) in 17 days, the first version grabbed $335 million in the same timeframe.

Revenue over the summer was already 15% below 2013 despite having about the same number of “can’t miss” titles. Every single one underperformed every expectation. The “mystery” persists as the only plausible explanation offered is that people are staying home and watching Netflix or Amazon Prime. I think that is a big part of it, but, just as online shopping takes the bite out of holiday spending in-store, that isn’t enough for me to explain the size of these declines. Both movie revenue and bricks and mortar shopping are so far far below all expectations, as especially online spending has failed tremendously to fill the gap this year.

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Where else could it have gone?

Greece Lurches Back Into Crisis Mode (Bloomberg)

Greek stocks fell more than at any point during Europe’s debt crisis today after Prime Minister Antonis Samaras gambled his political future on bringing forward a parliamentary vote on a new head of state. Greek stocks tumbled the most since 1987 and three-year yields surged in response to the prime minister’s move. Unless he can persuade 25 opposition lawmakers to support his choice, Samaras will be forced to call a parliamentary election that anti-austerity party Syriza would be favorite to win. “Investors have taken a second look at Syriza and understood that at this point in time it’s more radical than the traditional left in Greece,” said Nicholas Veron, a fellow at the Bruegel research institute in Brussels. “If Syriza takes over it won’t be a smooth ride.”

Less than a month before Samaras had hoped to lead Greece out of the bailout program that has ravaged the country for the past four years, the resistance to his policies is fueling doubts about whether he can stay the course. While Syriza has pledged to stick with the euro, its plans to roll-back Samaras’s budget cuts evoke memories of the financial chaos that threatened to bust apart the currency union in 2012. Greece’s benchmark stock index dropped 13% and the bond market signaled investors are concerned about short-term disruptions, as the yield on 3-year debt jumped 176 basis points to 8.23%, surpassing 10-year rates. “It’s possibly a good decision, but in the end it’s in the hands of the decision makers in parliament and the population,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels.

Greece’s reform program is “not yet over the hill,” he added. Samaras nominated Stavros Dimas, a 73-year-old former European Union commissioner, for the largely ceremonial post of president. Voting will begin next week, on Dec. 17, with two further rounds possible. Under Greece’s constitution, a supermajority of at least 180 lawmakers in the 300-seat chamber is needed to elect a successor to the incumbent, President Karolos Papoulias. The government has the support of just 155 lawmakers. Failure to install a candidate after three attempts would force Samaras to dissolve parliament.

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Tha Japan elections are a big story this week.

Japan Threatened With Credit Rating Downgrade (CNBC)

Japan’s “A-plus” credit rating is under threat, after Fitch Ratings placed the country’s debt on negative watch on Tuesday. The ratings agency said it could cut Japan’s rating in the first half of next year, following the government’s decision to delay a consumption tax hike to April 2017 from October 2015. “The delay implies it will be almost impossible to achieve the government’s previously-stated objective of reducing the primary budget deficit to 3.3% of GDP by the fiscal year April 2015-March 2016,” said Fitch in a report on Tuesday. Fitch estimates the proportion of Japan’s debt to the size of its gross domestic product would reach 241% by the end of this year, up from 184% at end-2008. The 57 percentage point rise in the ratio would be the second-highest over the period in the A or double-A category after Ireland, the agency noted.

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If you can say a bank belongs to its shareholders, it’s teh latter who pay for the criminal activities of the traders and managers. And nowhere in there does the Justice department see a taks?

Citigroup Sets Aside $2.7 Billion For Legal Costs (BBC)

Michael Corbat, the chief executive of US bank Citigroup, has said the firm is setting aside $2.7bn (£1.7bn) for legal costs in the fourth-quarter. Costs have risen due to US investigations into Citigroup’s behaviour in currency markets, setting the Libor rate, as well as an anti-money-laundering probe. In October, the bank was forced to restate its third-quarter results. It wrote off $600m due to the “rapidly evolving regulatory inquiries”. Mr Corbat made the remarks during a presentation at an investor conference, in which he also said that bank would write down $800m in expenses related to real estate and employee headcount. He said he expects the bank to remain “marginally profitable” during the period. Shares in Citigroup fell 2.5% after his remarks.

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Lovely. And that’s without counting China.

This Is What 6 Years Of Central Bank Liquidity Injections Look Like (Zero Hedge)

Curious how over the past 6 years we got to a point where the market is now so irreparably broken, even the BIS couldn’t take it anymore and threw up all over the the world’s central bankers? Then look no further than the following chart summarizing 6 years of global central bank liquidity injections that have made it imperative to use quotation marks every time one writes the word “market”

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They’re still TBTF, so what does it matter?

Big US Banks Face Capital Requirement of 4.5% on Top of Global Minimum (BBG)

Big U.S. banks face capital surcharges of as much as 4.5% as the Federal Reserve readies new capital rules that single out firms reliant on short-term market funding as posing the greatest systemic risk. The Fed today proposed two methods to calculate what capital surcharges eight big U.S. firms will face on top of those already levied on the world’s largest banks by international regulators. While the central bank stopped short of listing the surcharges for each firm, it said they probably will range from 1% to 4.5% based on 2013 data – exceeding the maximum of 2.5% set under global rules. The aggregate amount the eight banks need to meet the surcharges from current levels is $21 billion, Federal Reserve officials said.

While stiffer rules can lower returns for shareholders of companies that hold onto profits to build capital, the Fed said “almost all” of the firms already meet the new requirements, and all are on their way to meeting them by the end of a phase-in period that runs from 2016 to 2019. The new U.S. regulations will focus in part on how much the banks borrow from institutional investors in short-term contracts, a form of funding deemed as riskier during a crisis. “Reliance on short-term wholesale funding is among the more important determinants of the potential impact of the distress or failure of a systemically important financial firm on the broader financial system,” Fed Governor Daniel Tarullo said. “Unfortunately, the surcharge formula developed by the Basel Committee does not directly take into account reliance on short-term wholesale funding.”

In the wave of rules meant to prevent a repeat of the 2008 financial crisis, the Fed has made global agreements tougher when applying them to U.S. lenders. The eight U.S. firms covered by today’s proposal are JPMorgan, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon and State Street. “The U.S. once again chooses to go its own way and exceed international minimums,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said before today’s announcement. “If they squeeze the big banks too much, they’ll force some out of some businesses.”

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America will pay a dear price for these crimes.

Stop Believing The Lies: America Tortured More Than ‘Some Folks’ (Guardian)

The torture defenders from the CIA and the Bush administration probably won’t even make a serious attempt to say they didn’t torture anyone – just that it was effective, that there were “serious mistakes”, but that “countless lives have been saved and our Homeland is more secure” – with a capital H. This highlights the mistake of the Senate committee, in a way. Instead of focusing on the illegal nature of the torture, Senator Dianne Feinstein’s investigators worked to document torture’s ineffectiveness. The debate, now, is whether torture worked. It clearly didn’t. But the debate should be: Why the hell aren’t these torturous liars in jail?

Worse still, the CIA has still largely succeeded in stripping the landmark report of anything that could lead to accountability. The agents who were not only protected from discipline for their actions but were promoted now have their names completely redacted. So, too, are the names of the dozens of countries that helped the CIA carry out its torture regime. That includes many of the world’s worst dictators – the very men America now claims to hate, including Egypt’s Hosni Mubarak, Syria’s Bashar al-Assad, and Libya’s Muammar Gaddafi.

But make no mistake: there’s still an extraordinary amount to take away from this report. If there is one tragic story, out of the many, that is emblematic of the CIA program, as its supporters defend it in the days, it’s that of Gul Ruhman. It may be two stories – it’s hard to know, so much has been redacted and the atrocities are so countless – but at least one Gul Ruhman we know was tortured at the notorious CIA black site known as the Salt Pit, chained to the floor and frozen to death. The CIA’s inspector general referred this person’s case to CIA leadership for discipline, but was overruled. Four months after the incident, the officer who gave the order that led to Rahman’s death was recommended for a $2,500 “cash reward” for his “consistently superior work”.

Footnote 32 explains why a dead prisoner ended up in CIA custody in the first place: “Gul Ruhman, another case of mistaken identity.”

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“Ignorance is not just strength – it is the most awesome force in the universe. Consider this: knowledge is always limited and specific, but ignorance is infinite and completely general ..”

Defeat is Victory (Dmitry Orlov)

America is the world’s indispensable nation, world’s (second) greatest economic power (but rising fast), and American leadership is respected throughout the world. When President Obama said so in a recent speech he gave in China, the audience did not at all laugh out loud right in his face, roll their eyes, make faces or move their heads side to side slowly while frowning.

How can you avoid recognizing the importance of such things, and the fact that they spell DEFEAT? Easy! Ignorance to the rescue! Ignorance is not just strength – it is the most awesome force in the universe. Consider this: knowledge is always limited and specific, but ignorance is infinite and completely general; knowledge is hard to convey, and travels no faster than the speed of light, but ignorance is instantaneous at all points in the known and unknown universe, including alternate universes and dimensions of whose existence we are entirely ignorant. In short, there is a limit to how much you can know, but there is no limit at all to how much you don’t know but think you do!

Here is something that you probably think you know. The American empire is an “empire of chaos.” Yes, it sort of fails somehow to achieve peace, prosperity, democracy, stability, avert humanitarian crises, or stop lots of horrible crimes. But it does achieve chaos. What’s more, it achieves a wunnerful new type of chaos just invented, called “controlled chaos.” It’s much better than the old kind; sort of like “clean coal” – which you can rub all over yourself, go ahead, try it! Yes, there are naysayers out there that say things like “You reap what you sow, and if you sow chaos, you shall reap chaos.” I guess they just don’t like chaos. To each his own. Whatever.

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They have to do research to figure that out?!

Rising Inequality ‘Significantly’ Curbs Growth (CNBC)

The chasm between the richest and poorest is at a 30-year high in developed countries, dragging down world economic growth, according to a new international report. Worsening income inequality is estimated by the Organisation for Economic Co-operation and Development (OECD) to have knocked nearly 9 percentage points off growth in the U.K. between 1990 and 2010, and between 6 and 7 percentage points off growth in the U.S. “This long-term trend increase in income inequality has curbed economic growth significantly,” said the OECD, which is made up of 34 major economies, in a report out Tuesday.

Looking ahead, the organization forecast that over a 25 year period, inequality would reduce growth by an average of 0.35% points per year in OECD countries. “The biggest factor for the impact of inequality on growth is the gap between lower income households and the rest of the population,” said the OECD. “These findings imply that policy must not (just) be about tackling poverty, it also needs to be about addressing lower incomes more generally.” Worst hit between 1990 and 2010 were Mexico and New Zealand, where the OECD estimated that rising inequality had knocked more than 10 percentage points off growth. “On the other hand, greater equality prior to the crisis helped increase GDP per capita in Spain, France and Ireland,” said the OECD.

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We should never let this through. Once signed, it’ll be very hard to get rid off, and it benefits the wrong people.

TTIP Divides A Continent As EU Negotiators Cross The Atlantic (Guardian)

Rarely has a trade agreement invited such hyperbole and paranoia. The Transatlantic Trade and Investment Partnership (TTIP) – or proposed free trade pact between the US and the European Union – has triggered apocalyptic prophecies: the death of French culture; an invasion of transatlantic toxic chickens into Germany; and Britain’s cherished NHS will become a stripped-down Medicare clone. From the point of view of free-trade cheerleaders, EU carmakers will more than double their sales, Europe will be seized by a jobs and growth bonanza and city halls from Chicago to Seattle will beg European firms to build their roads and schools. The world’s biggest trading nations will have no choice but to play by the west’s rules in the new world created by TTIP. Such are some of the claims made for TTIP which is now stoking a propaganda war on a scale never seen before in the arcane world of tariffs and non-tariff trade negotiations.

“It’s the most contested acronym in Europe,” said Cecilia Malmström of Sweden, the EU trade commissioner about to take charge of the European side of the negotiations. She stepped into the fray on Sunday, her first trip to Washington since taking up her post in November. TTIP dominates her intray. Eighteen months after the launch and seven rounds of talks, everything remains up in the air. The Americans are worried. Those in Brussels running the negotiations sound crestfallen. The opposition in Europe to a transatlantic free trade area believes it has the momentum, buoyed by scare stories regularly amplified by the European media. A petition against the trade pact surpassed the 1m mark this week. It will be handed to Jean-Claude Juncker, the European commission chief, in Brussels on Tuesday, as a present on his 60th birthday. “There is mistrust,” Matthew Barzun, the US ambassador in London, told the Guardian. A key EU official put it another way: “[TTIP is] more sensitive politically in Europe than in the US.”

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“The risk to the world “is always there” while the outbreak continues ..”

Ebola Virus Still ‘Running Ahead Of Us’, Says WHO (BBC)

The Ebola virus that has killed thousands in West Africa is still “running ahead” of efforts to contain it, the head of the World Health Organization has said. Director general Margaret Chan said the situation had improved in some parts of the worst-affected countries, but she warned against complacency. The risk to the world “is always there” while the outbreak continues, she said. She said the WHO and the international community failed to act quickly enough. The death toll in Guinea, Liberia and Sierra Leone stands at 6,331. More than 17,800 people have been infected, according to the WHO. “In Liberia we are beginning to see some good progress, especially in Lofa county [close to where the outbreak first started] and the capital,” said Dr Chan.

Cases in Guinea and Sierra Leone were “less severe” than a couple of months ago, but she said “we are still seeing large numbers of cases”. Dr Chan said: “It’s not as bad as it was in September. But going forward we are now hunting the virus, chasing after the virus. Hopefully we can bring [the number of cases] down to zero.” The official figures do not show the entire picture of the outbreak. In August, the WHO said the numbers were “vastly under-estimated”, due to people not reporting illnesses and deaths from Ebola. Dr Chan said the quality of data had improved since then, but there was still further work to be done.

She said a key part of bringing the outbreak under control was ensuring communities understood Ebola. She said teams going into some areas were still being attacked by frightened communities. “When they see people in space suits coming into their village to take away their loved ones, they were very fearful. They hide their sick relatives at home, they hide dead bodies. “[This is] extremely dangerous in terms of spreading disease. So we must bring the community on our side to fight the Ebola outbreak. Community participation is a critical success factor for Ebola control. “In all the outbreaks that WHO were able to manage successfully – that was a success element and this [is] not happening in this current situation.”

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Oct 252014
 
 October 25, 2014  Posted by at 12:12 pm Finance Tagged with: , , , , , , , , , , , ,  7 Responses »
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DPC Luna Park, Coney Island 1905

An Economy Based On Property Has Much To Fear (Independent)
Lenders Facing Soaring Costs Shutting Out U.S. Homebuyers (Bloomberg)
It Shouldn’t Hurt This Much to Get a Mortgage (Ritholtz)
Paying For Bad Habits: Hookers And Drugs Lift UK’s EU Bill (Guardian)
UK Chancellor Osborne’s Choice Of Words Is Sounding Alarm Bells (Guardian)
A Mystery Bidder Offers $3 Million for 6,000 of Detroit’s Worst Homes (BW)
Spanish Accuse Goldman, Blackstone Of Hiking Rent For Poor (Independent)
EU Bank Breakup Plan Hits More Hurdles as Danes Reject Idea (Bloomberg)
Citigroup Bets ECB Will Do QE as Morgan Stanley Sees Odds at 40% (Bloomberg)
50% Of American Workers Make Less Than $28,031 A Year (Snyder)
The American Dream Is Still Possible, Just Not in the US (Daily Bell)
Rosenberg Says No Recession Until At Least 2016 (MarketWatch)
China Auto Market Growth To Shrink by 50% This Year: Industry Head (Reuters)
Blood In The Water As Amazon Magic Fades (Reuters)
Putin Accuses U.S of Blackmail, Weakening Global Order (Bloomberg)
NPR Slashes Number Of Environment Reporters To One Part-Timer (HuffPo)
Ebola Epidemic In Africa To Explode Without Rapid, Substantial Aid (Lancet)
‘Official’ Number of Ebola Cases Passes 10,000, With 5,000 Deaths (BBC)

A very smart way to look at it.

An Economy Based On Property Has Much To Fear (Independent)

Believe it or not, the Bank of England isn’t just a bunch of bowler-hatted types stuck behind desks in Threadneedle Street. It has agents up and down the country interviewing business people on how their companies are faring: what goods are selling well, whether they’re hiring or firing, that sort of thing. The monthly bulletins that result rarely get reported, but are useful because they layer anecdotal evidence on top of the regular run of dry economic stats. Superficially, October’s feedback had much to cheer – order books are swelling in most sectors, employment is expected to increase, and access to credit has improved. But it is striking how much of this positive stuff is related, directly or indirectly, to the property market.

Business services firms – accountants, lawyers and the like – are growing because of an increase in construction deals; manufacturing and retail sales are being kept afloat by sales of kitchens, bathrooms and furniture thanks to people moving house; business investment is growing as firms spend more on doing up their premises or moving to new sites. Property, property, property. Exporters, meanwhile, were gloomy, with all, from farmers to manufacturers, complaining of eurozone weakness, Russian belligerence and war in the Middle East. That means we will be reliant on the domestic economy for years to come. With this still clearly so dominated by the world of bricks and mortar, one has to wonder, what would happen if interest rates start to rise? Disaster, that’s what. The Bank’s other document release yesterday – the minutes to the Monetary Policy Committee’s last meeting on rates – show a continuing doveish slant. Good job, too.

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No, prices vs income shuts out potential buyers. So either significantly raise wages or drop prices, and stop whining.

Lenders Facing Soaring Costs Shutting Out U.S. Homebuyers (Bloomberg)

Clem Ziroli Jr.’s mortgage firm, which has seen its costs soar to comply with new regulations, used to make about three loans a day. This year Ziroli said he’s lucky if one gets done. His First Mortgage Corp., which mostly loans to borrowers with lower FICO credit scores and thick, complicated files, must devote triple the time to ensure paperwork conforms to rules created after the housing crash. To ease the burden, Ziroli hired three executives a few months ago to also focus on lending to safe borrowers with simpler applications. “The biggest thing people are suffering from is the cost to manufacture a loan,” said Ziroli, president of the Ontario, California-based firm and a 22-year industry veteran. “If you have a high credit score, it’s easier. For deserving borrowers with lower scores, the cost for mistakes is prohibitive and is causing lenders to not want to make those loans.”

Federal regulations, enacted after the collapse of the subprime market spurred the financial crisis, are boosting mortgage costs this year. Most lenders are responding by providing home loans only to borrowers with near perfect credit, shutting out creditworthy Americans whose loan files are too expensive to review and complete. If banks commit compliance errors in issuing a loan that goes bad, they have to buy it back at a loss from Fannie Mae or Freddie Mac. During the housing boom between 2004 and 2007, lenders provided about $2 trillion in subprime loans, many to unqualified borrowers. So-called liar loans didn’t require borrowers to provide pay stubs or tax returns to document earnings. Teaser rates as low as 1% offered on mortgages soared when they reset a few years later.

The share of subprime mortgages for which borrowers either provided little documentation of their assets or none at all rose to 38% in 2007 from 32% in 2003, according to a paper published by the Federal Reserve. Almost one in four of those mortgages defaulted by 2008 compared with one in five of fully documented subprime loans. Wall Street firms securitized pools of the loans called collateralized debt obligations and sold them to investors. They also created so-called synthetic CDOs that were derivative instruments designed to mirror the performance of the loan pools. “What started the crisis were these loans that were designed to fail, loans that weren’t underwritten at all,” said Julia Gordon, director of housing finance and policy at the Washington-based Center for American Progress, which has ties to the Democratic Party. “No one quite realized that these loans were then at the bottom of this giant pyramid scheme, where the Wall Street derivative products that were based off of them would just come crashing down and take the whole economy with them.”

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Sorry, Barry, but that’s as wrong as can be. It should very much be this hard, or prices will never find their ‘natural’ floor.

It Shouldn’t Hurt This Much to Get a Mortgage (Barry Ritholtz)

Under normal circumstances, approving my mortgage application should be a no-brainer: High income, no debt, good credit score. The missus also makes a good income, has an almost-perfect credit score and has been working for the same business for 28 years. But these are not normal circumstances. Let me jump to the end: Yes, we got our mortgage. We put 20% down, bought a house that appraised for more than the purchase price and got a 3.25% rate on a mortgage that resets after seven years. We moved in last month.

But the process was surreal. Indeed, it was such a bizarre experience that I started hunting for explanations from people in the industry about why mortgage lending has gone astray. I spoke to numerous experts, many of whom spoke only on background. Today’s column is about what I learned. By just about any measure, credit is tighter today than it has been in decades. Although former Federal Reserve Chairman Ben Bernanke’s inability to refinance a mortgage is merely anecdotal, consider instead the gauge CoreLogic developed. It used 1998 as a baseline and considered six quantitative measurements to evaluate how loose or easy mortgage lending is. By those metrics, this is the tightest credit market for mortgage lending in at least 16 years.

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I like my take from yesterday better: French hookers are cheaper than British ones.

Paying For Bad Habits: Hookers And Drugs Lift UK’s EU Bill (Guardian)

Listening to EU officials describe how Britain pays its annual EU contribution brings to mind George W Bush being questioned about one of his administration’s budgets. Flicking the pages before assembled journalists he said: “There’s a lot of pages, a lot of lines and a lot of numbers.” To all but a few, the addings up and subtractings that go on in Brussels make little more sense. One of the few things that does seem clear is that Britain is paying for its bad habits. Brussels needs more cash this year to cope with overspent budgets. And while it might seem unfair to tax a country for needing a bigger crutch than others in the EU club, relatively speaking, the UK’s GDP has jumped courtesy of new estimates of the nation’s consumption of drugs and use of prostitutes. The EU applies its complex calculation of how much member states should pay into its coffers largely on GDP levels. The bigger the national income, the bigger the contribution. So far, so simple.

However, earlier this year the UK’s GDP was given a £10bn boost after officials calculated that sex work generated £5.3bn for the economy in 2013, with another £4.4bn coming from the sale of cannabis, heroin, powder cocaine, crack cocaine, ecstasy and amphetamines. Other countries have been affected too after the EU calculated how much of their hidden economies should be brought on the books. Greece faces a larger contribution despite losing a fifth of is national income since 2009. Italy is another victim, though arguably it has only included a fraction of the mafia’s business in its GDP calculations. More importantly, Britain is paying more because this year it is simply bigger than 18 months ago while other countries have stood still or contracted. Like soldiers in a lineup who find themselves volunteering for toilet duty after everyone else has taken a step back, the UK Treasury is paying for being one of the few among the EU’s 27 economies to strengthen this year.

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A glitch in the posturing process?!

UK Chancellor Osborne’s Choice Of Words Is Sounding Alarm Bells (Guardian)

George Osborne is clearly worried. Going into a pre-election war-gaming huddle with his advisers, the economic numbers that once sang a happy tune and are so crucial to victory, now sound a little discordant. It seems churlish to strain for the bum notes in the latest GDP figures. All parts of the economy are growing, with the exception of agriculture. And growing more strongly than they are in any of the major European economies. But it is the chancellor’s words that set off the alarm bells. He said: “If we want to avoid a return to the chaos and instability of the past, then we need to carry on working through our economic plan that is delivering stability and security.” Adopting the word “chaos” is at once interesting and alarming. He seems to be saying that any other path than the one he has chosen will bring with it a swirling storm of instability. Billing himself as Lord Protector, Osborne risks overstating his case, especially when the GDP numbers are so strong.

Growth is moderating, but most surveys report that businesses remain confident about the recovery and continue to hire more staff. As a result, unemployment continues to fall. So what can he be worried about? There is the three months of restrained housing market activity. If it’s true, and we don’t fully understand the link, that much of the recovery is connected to the increase in property buying, then any slowdown is a cause for concern. Except the chancellor wanted the housing market to cool. And his policies are largely the reason banks are refusing to dole out loans after he gave regulators instructions in April to clampdown on risky mortgage lending. A slowdown in housebuilding was also a logical knock-on effect, given that a majority of homes are constructed by a private building sector keen to maintain its extraordinary profit levels.

We know he is worried about the slowdown in exports, which didn’t take off four years ago, as he had expected. The eurozone’s impending recession is largely to blame, but a lack of support to exporters, particularly multimillion-pound credit insurance, has also proved a barrier. However, the crucial issue is the government’s finances, which have worsened this year despite the strong recovery. For a man with the electoral cycle stamped on his DNA, it is tragic that businesses and workers are not paying much extra tax.

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What do Detroiters think of this?

A Mystery Bidder Offers $3 Million for 6,000 of Detroit’s Worst Homes (BW)

Three million dollars can barely buy a new townhouse in Brooklyn these days, but it could be enough to purchase a bundle of more than 6,000 foreclosures up for auction in Detroit. The cost of dealing with the many blighted buildings included in the Detroit mega-auction means a $3.2 million bid received last week—roughly the minimum allowable bid of $500 per property—will likely prove too high to turn a profit. “I can’t imagine that you are going to make money on this,” says David Szymanski, chief deputy treasurer of Wayne County, which is selling the properties. So it’s all the more mysterious that the auction, opened with little fanfare earlier this month, has attracted any bidder at all. Still, at least one unidentified party is willing to pay $3.2 million to take control—and responsibility—for scores of dilapidated homes. In fact, winning the bid could cost the lucky winner a small fortune beyond the auction price.

Finding a way to deal with Detroit’s blight is critical for the city’s future. A task force has already called for immediately tearing down 10% of all structures. The group surveyed the condition of every Detroit property and identified neighborhoods at a tipping point at which stripping them of blight could keep certain areas from slipping away entirely. “I had cancer 12 years ago, and this is exactly like cancer,” Szymanski says. “If you don’t get it all, it’s going to come back.” Wayne County has become a major owner of blighted properties, which it can seize when owners fall behind on taxes. The scale of its distressed holdings is unprecedented. When Szymanski joined the treasurer’s office four years ago, he called the treasurer of Cuyahoga County in Ohio to compare notes. His counterpart, whose domain includes Cleveland and was a bellwether during the housing crisis, asked: “Are you sitting down? We are foreclosing on 4,500 properties.” Szymanski says he replied: “I hope you’re laying down.” At the time, Wayne County had 42,000 properties in foreclosure.

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Throw ’em out!

Spanish Accuse Goldman, Blackstone Of Hiking Rent For Poor (Independent)

The London investment arms of Goldman Sachs and Blackstone were accused last night of jacking up the rents of Madrid’s poorest people after they bought thousands of the city’s council flats. Many, unable to afford their new terms, have now been threatened with eviction or moved out. During the financial crisis, the city was advised by the accountants PwC to sell off swathes of its social housing in order to raise desperately needed funds. It sold 5,000 flats to investors including Goldman and Blackstone. Nothing changed in the tenants’ rents until their leases ran out, when, in many cases, the charges shot up dramatically. Reuters interviewed over 40 households who have been thrown into difficulties by the rent rises. They include Jamila Bouzelmat, a mother of six who lives in a four-bed flat now owned by Goldman and a Spanish property firm. She said her family had been paying €58 (£46) a month rent from her husband’s €500 unemployment benefit. But in April, her new landlords suddenly took €436 from her account.

Ms Bouzelmat said she only discovered the problem when she tried to pay an electricity bill: “We went to take money out and there wasn’t a cent left in the bank,” she explained. 1 in 5 adults in Madrid are unemployed. Goldman and Blackstone are entirely within their rights to charge market-price rents. However, a number of lawsuits have now been launched by local politicians against the councils that sold the homes. The problem is particularly bad in Spain because it already had one of the smallest stocks of social housing in Europe. Now 15 per cent of it has been sold off to London banks and private equity firms, there is even less. Goldman’s properties had about 400 households on reduced rents, often negotiated individually with the council and set for up to two years. Goldman referred inquiries to Encasa Cibeles, the local firm set up to manage the flats. A spokesperson said: “Evictions occur in an extremely small number of cases.”

Blackstone’s tenants have been on longer leases but most have been paying below-market rents. As leases approach expiry, rates have risen 40%. Blackstone referred inquiries to Fidere, the local estate management company, which said “some people have lost the public subsidy they received from the council”. It is negotiating with the 2% of its tenants in that situation.

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There’s always another politician to put on the payroll.

Bank Breakup Plan Hits More EU Hurdles as Danes Reject Idea (Bloomberg)

Denmark won’t back a proposal to split Europe’s biggest banks as the region’s first country to enforce bail-in rules questions the value of more regulation. “With all the legislation now in place there really shouldn’t be more worries,” Business Minister Henrik Sass Larsen said in an interview yesterday at the parliament in Copenhagen. A proposal by Michel Barnier, the European Union’s financial services chief, to break up systemically important banks has resurfaced with local regulators trying to defend national interests, according to a document obtained by Bloomberg News. Italy, which holds the EU’s rotating presidency, said it was looking for “concrete options for the way forward” after registering “strong concerns” among member states, the document showed. “With the regulation we’ve put in place, we’re fully covered,” Larsen said, characterizing the notion that more may be needed as obsolete. The proposal for reforming bank structures has come under attack on multiple fronts since Barnier presented it in January.

In addition to a narrowly defined proprietary-trading ban, Barnier set out EU-wide standards for splitting up the most systemically important banks that would push certain kinds of derivatives and other trading activities into separately capitalized units. Barnier’s plans require approval from national governments and the European Parliament to take effect, with talks set to continue into next year. Britain’s Jonathan Hill, who will replace Barnier as financial services commissioner on Nov. 1, has said he will “take forward work” on the proposal. Larsen’s position shows some EU nations back industry efforts to block further regulation. Christian Clausen, the president of the European Banking Federation and the chief executive of Nordea Bank AB, said this week plans to add rules to the existing framework are “going beyond reason.” Clausen said he plans to have a “serious talk” with the European Commission and parliament to prevent further regulatory tightening.

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Think Berlin.

Citigroup Bets ECB Will Do QE as Morgan Stanley Sees Odds at 40% (Bloomberg)

Economists are at odds over whether the European Central Bank will do “whatever it takes” to revive inflation in the euro area. More than two years after President Mario Draghi promised to pull out all the stops to protect the euro from a swirling debt crisis, ECB-watchers are split over whether the central bank will buy government bonds to aid the struggling economy. In making forecasts for the possible deployment of full-blown quantitative easing, the pressures of weak growth and sliding inflation are being balanced against Germany’s aversion to purchasing sovereign debt and practical considerations such as how and whether it would work. Draghi said earlier this month that the ECB will use further unconventional monetary policy instruments if needed to support recovery. Goldman Sachs sees one-in-three odds of QE, Morgan Stanley views the chances at 40% and JPMorgan is at 50-50. By contrast, HSBC, Barclays and Bank of Americahave sovereign QE as part of their central scenarios. Citigroup even says it could happen before the end of this year.

Here then is a handy round-up, gleaned from reports and interviews, of where economists at major banks stand. Huw Pill, Goldman Sachs: “Sovereign QE is not part of our baseline scenario, which is for economic activity to go sideways and inflation to remain low. We think the current gloom and doom about the euro area outlook is overdone.” Joerg Kraemer, Commerzbank: “We were one of the first banks to predict at the end of August that the ECB would buy government bonds on a generous scale, envisaging this happening at the start of next year rather than this year.” “It has become far more likely that the bank will act before the end of this year. Concerns about the economy that have triggered the drop in equity prices make it ever more likely that the ECB will have to lower its optimistic growth forecast for 2015 of 1.6%.” “This fact plays into the hands of those on the ECB Council in favour of relaxing the reins, as does our expectation that the end of the bank stress test will not in fact sound the all-clear for weak lending. Long-term inflation expectations have dropped sharply.”

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Gutted like a fish.

50% Of American Workers Make Less Than $28,031 A Year (Snyder)

The Social Security Administration has just released wage statistics for 2013, and the numbers are startling. Last year, 50% of all American workers made less than $28,031, and 39% of all American workers made less than $20,000. If you worked a full-time job at $10 an hour all year long with two weeks off, you would make $20,000. So the fact that 39% of all workers made less than that amount is rather telling. This is more evidence of the declining quality of the jobs in this country. In many homes in America today, both parents are working multiple jobs in a desperate attempt to make ends meet. Our paychecks are stagnant while the cost of living just continues to soar.

And the jobs that are being added to the economy pay a lot less than the jobs lost in the last recession. In fact, it has been estimated that the jobs that have been created since the last recession pay an average of 23% less than the jobs that were lost. We are witnessing the slow-motion destruction of the middle class, and very few of our leaders seem to care. The “average” yearly wage in America last year was just $43,041. But after accounting for inflation, that was actually worse than the year before… American paychecks shrank last year, just-released data show, further eroding the public’s purchasing power, which is so vital to economic growth.

Average pay for 2013 was $43,041 — down $79 from the previous year when measured in 2013 dollars. Worse, average pay fell $508 below the 2007 level, my analysis of the new Social Security Administration data shows. Flat or declining average pay is a major reason so many Americans feel that the Great Recession never ended for them. A severe job shortage compounds that misery not just for workers but also for businesses trying to profit from selling goods and services. Average pay declined in 59 of the 60 levels of worker pay the government reports each October.

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In Canada? Really? What part of the dream is that?

The American Dream Is Still Possible, Just Not in the US (Daily Bell)

Although there are no firm statistics on the number of Americans living outside the US, the US State Department estimates that somewhere between 3 and 6 million Americans now live offshore. I think this is a low estimate and the number is clearly growing. I now live in Canada but often travel back to the United States. Driving through Customs near Buffalo is usually not a big ordeal but it does involve a time-wasting delay much like visiting the post office or any other US government bureaucracy. But governments should police their borders, as this is one of the few legitimate functions of a central government. Still, whenever I’m there I do notice the America I grew up in and once knew has really changed since 9/11. The trend toward a more militarized and aggressive police force continues to quicken. I know most Americans accept this as part of the consequences of the War on Terror just as they do the loss of financial privacy, increased fines and asset seizures.

The Canadian government recently warned citizens to be careful when taking cash to the US because of the risk of police taking their cash for hyped-up offenses. Did you know that in the last 13 years, over $2.5 billion has been stolen by law enforcement in almost 62,000 cash seizures? I have to say that as an American, I’m outraged at the situation and always on guard when in the USSA. I fear many Americans who don’t travel internationally might have become somewhat immune to the intrusive, arbitrary nature of today’s American government and its institutions. Here in Canada, law enforcement is almost always professional and courteous and even the bureaucrats are friendly and helpful, which simply amazes me. So to my American family, friends and business associates, I want you to know it is still possible to achieve the American Dream of a simple life with opportunity for wealth creation, fun, freedom and good times without an overly intrusive, threatening government … just not in the United States.

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Rosy’s started living up to his nickname.

Rosenberg Says No Recession Until At Least 2016 (MarketWatch)

It’s going to take a little bit more than Ebola, eurozone pessimism and a rising U.S. dollar to turn David Rosenberg into a bear. The chief economist and strategist at Gluskin Sheff, in his economic commentary, points out the leading economic indicator released Thursday showed a 0.8% monthly advance and a 6.3% year-over-year gain in September. This rate, he says, is consistent with annual real GDP just under 4.5%. Plus, the one-month diffusion index jumped to a four-year high of 90%. Usually, within six months of a recession, the year-over-year trend turns negative while the diffusion index falls below 30%.

“Looking at the situation another way, based on where both the YoY LEI trend and the diffusion indices are now, and tracing them through the classic business cycle, we are at least two years away from the next recession,” he says. What does that mean for stocks? “The reality is that bear markets do not just pop out of the air,” he said. “They are caused by tight money, recessions, or both. These conditions do not apply, nor will they until 2016 at the earliest.”

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That’s a lot of cars planned for and produced, that are not going to be sold.

China Auto Market Growth To Shrink by 50% This Year: Industry Head (Reuters)

Growth in China’s auto market, the world’s biggest, will halve to 7% this year weighed down by a slowing economy, the head of an industry body said on Saturday. “Personally, I think growth this year can reach 7%,” Dong Yang, secretary general of the China Association of Automobile Manufacturers (CAAM), told reporters on the sidelines of an industry conference in Shanghai. “The economy is slowing. The auto industry would reflect that but typically lags the economic cycle by a bit.” CAAM had forecast China’s auto market, which grew by 13.9% last year, to expand at 8.3% in 2014. Dong said CAAM will not make any official revisions to its forecast. [..] Nissan has said its China sales fell by 20% in September from a year earlier, the third straight month of decline, due to sluggish sales of light commercial vehicles and increased competition in the passenger car segment. During the first nine months of the year, overall vehicle sales in China rose 7% from the same period a year earlier, according to CAAM data.

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Jeff Bezos has issues.

Blood In The Water As Amazon Magic Fades (Reuters)

Amazon.com’s once fairy-tale ride on Wall Street has hit its most jarring bump yet. The company that for years enthralled investors with improbable growth and earned one of the technology sector’s highest valuations drew widespread ire after a spectacular results letdown on Thursday. Amazon missed expectations across the board – on margins, on its net loss and on revenue. An unaccountably poor 7% to 18% revenue growth forecast for the typically strongest holiday quarter was the final straw for some. Coming just three months after a big letdown in July, the warning may represent a tipping point for investors who are already wary of a triple-digit price-earnings ratio and a persistent unwillingness to throttle back spending.

“They’re becoming much too distracted in all these other efforts” outside core businesses like online retailing and web services, said Matthew Benkendorf, portfolio manager at Vontobel Asset Management. Benkendorf unloaded his Amazon holdings a year ago and said he would be skeptical of future involvement even if the stock falls further. “They are their own worst enemy to success,” he said. “They really need to do some soul searching and get focused.”

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Not a bad analysis.

Putin Accuses U.S of Blackmail, Weakening Global Order (Bloomberg)

The U.S. is behaving like “Big Brother” and blackmailing world leaders, while making imbalances in global relations worse, Russia’s president said. Current conflicts risk bringing world order to collapse, Vladimir Putin told the annual Valdai Club in the Black Sea resort of Sochi. The Cold War’s “victors” are dismantling established international laws and relations, while the global security system has become weak and deformed, with the U.S. acting like the “nouveau riche” as global leader, he said. “The Cold War has ended,” Putin said. “But it ended without peace being achieved, without clear and transparent agreements on the new rules and standards.” Russia has clashed with the U.S. over conflicts from Syria to Ukraine, sending relations between the two countries to levels not seen since Soviet times. Putin, whose nation is on the brink of recession because of U.S. and European sanctions over Ukraine, also offered asylum to fugitive American government intelligence contractor Edward Snowden in 2013.

“Global anarchy” will grow unless clear mechanisms are established for resolving crises, Putin told the invited group of foreign and Russian academics and analysts. The U.S.’s “self-appointed” leadership has brought no good for other nations and a unipolar world amounts to a dictatorship, he said. “The United States does not seek confrontation with Russia, but we cannot and will not compromise on the principles on which security in Europe and North America rests,” State Department spokeswoman Jen Psaki said in response today in Washington. Psaki said the U.S. was committed to upholding Ukraine’s sovereignty and territorial integrity while continuing to cooperate with Russia on other issues, including destroying nuclear stockpiles and Syria’s chemical weapons cache.

“Our focus is on continuing to engage with Russia on areas of mutual concern, and we’re hopeful that we’ll be able to continue to do that,” Psaki said, “while we still certainly have disagreements on some issues.” Putin also attacked globalization, which he said has “disillusioned” many countries and risks hurting trust in the U.S. and its allies. More nations are trying to escape dependence on the dollar as a reserve currency by forming alternative financial systems, according to the Russian leader. Russia doesn’t want to restore its empire or have a special place in the world, Putin said. While it’s not seeking superpower status in international relations, it wants its interests to be respected, he said.

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Progress!

NPR Slashes Number Of Environment Reporters To One Part-Timer (HuffPo)

National Public Radio is down to just one environment reporter, and he’s only covering the beat part time, InsideClimate News reported Friday. As of early 2014, NPR had three reporters and an editor on the environment beat. Now they have one person, science reporter Christopher Joyce, holding down coverage of the issue, and his stories span a broad range of issues beyond the environment. The other three environment staffers have left NPR or moved to other beats. While other reporters could, of course, fill in with environment coverage, as needed, InsideClimate’s analysis of NPR’s archives finds that the number of environment stories has declined:

The number of content pieces tagged “environment” that NPR publishes (which include things like Q&As and breaking news snippets) has declined since January, according to an analysis by InsideClimate News, dropping from the low 60s to mid-40s every month. A year-to-year comparison shows that the outlet published 68 environment stories in September 2013 and 43 in September 2014. Last month, about 40% of that content was climate-related due to NPR’s cities project, as well as the media-intensive People’s Climate March and the UN climate summit in New York City. The rest was a mix of stories on agriculture and food, land conservation, wildlife, pollution and global health.

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Key line: “90,122 deaths in Montserrado alone by Dec. 15. Of these, the authors estimate 42,669 cases and 27,175 deaths will have been reported by that time.” Less than a third of deaths to be reported.

Ebola Epidemic In Africa To Explode Without Rapid, Substantial Aid (Lancet)

The Ebola virus disease epidemic already devastating swaths of West Africa will likely get far worse in the coming weeks and months unless international commitments are significantly and immediately increased, new research led by Yale researchers predicts. The findings are published in the Oct. 24 issue of The Lancet Infectious Diseases. A team of seven scientists from Yale’s Schools of Public Health and Medicine and the Ministry of Health and Social Welfare in Liberia developed a mathematical transmission model of the viral disease and applied it to Liberia’s most populous county, Montserrado, an area already hard hit. The researchers determined that tens of thousands of new Ebola cases — and deaths — are likely by Dec. 15 if the epidemic continues on its present course. “Our predictions highlight the rapidly closing window of opportunity for controlling the outbreak and averting a catastrophic toll of new Ebola cases and deaths in the coming months,” said Alison Galvani, professor of epidemiology at the School of Public Health and the paper’s senior author.

“Although we might still be within the midst of what will ultimately be viewed as the early phase of the current outbreak, the possibility of averting calamitous repercussions from an initially delayed and insufficient response is quickly eroding.” The model developed by Galvani and colleagues projects as many as 170,996 total reported and unreported cases of the disease, representing 12% of the overall population of some 1.38 million people, and 90,122 deaths in Montserrado alone by Dec. 15. Of these, the authors estimate 42,669 cases and 27,175 deaths will have been reported by that time.

Much of this suffering — some 97,940 cases of the disease — could be averted if the international community steps up control measures immediately, starting Oct. 31, the model predicts. This would require additional Ebola treatment center beds, a fivefold increase in the speed with which cases are detected, and allocation of protective kits to households of patients awaiting treatment center admission. The study predicts that, at best, just over half as many cases (53,957) can be averted if the interventions are delayed to Nov. 15. Had all of these measures been in place by Oct. 15, the model calculates that 137,432 cases in Montserrado could have been avoided. There have been approximately 9,000 reported cases and 4,500 deaths from the disease in Liberia, Sierra Leone, and Guinea since the latest outbreak began with a case in a toddler in rural Guinea in December 2013.

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Reality is likely three times worse here as well.

‘Official’ Number of Ebola Cases Passes 10,000, With 5,000 Deaths (BBC)

The number of cases in the Ebola outbreak has exceeded 10,000, with 4,922 deaths, the World Health Organization says in its latest report. Only 27 of the cases have occurred outside the three worst-hit countries, Sierra Leone, Liberia and Guinea. Those three countries account for all but 10 of the fatalities. Mali became the latest nation to record a death, a two-year-old girl. More than 40 people known to have come into contact with her have been quarantined. The latest WHO situation report says that Liberia remains the worst affected country, with 2,705 deaths. Sierra Leone has had 1,281 fatalities and there have been 926 in Guinea.

Nigeria has recorded eight deaths and there has been one in Mali and one in the United States. The WHO said the number of cases was now 10,141 but that the figure could be much higher, as many families were keeping relatives at home rather than taking them to treatment centres. It said many of the centres were overcrowded. And the latest report also shows no change in the number of cases and deaths in Liberia from the WHO’s previous report, three days ago.

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